Meat Industry INSIGHTS Newsletter

980838 Prices Rose 0.2 Percent Last Month

August 24, 1998

Washington - Tobacco and tomatoes, autos and air fare all cost more in July but price drops for computers, clothing and gasoline helped keep overall inflation dormant.

The Consumer Price Index rose 0.2 percent last month and inflation is running at a scant 1.5 percent annual rate so far this year, compared with 1.7 percent for all of last year, the Labor Department said Tuesday.

The absence of price pressures, plus continued uncertainty over global financial instability, led Federal Reserve policy-makers to hold short-term interest rates steady.

After meeting privately, Fed policy-makers signaled Tuesday they had made no change in the benchmark rate on overnight loans between banks. It's remained at 5.5 percent since March 1997.

But economists said if the impact of Asia on the U.S. economy deepens, and if inflation remains well-behaved, the central bank may cut rates around the end of the year.

“The Fed policy choices are going to be between no change and an easing” in rates, said economist David Jones of Aubrey G. Lanston & Co. in New York. “That's big a difference from the first half of the year, when the Fed's policy choice was between no change and a tightening.”

Inflation has remained contained, in part because the Asian economic crisis has contributed to a decline in world prices for commodities, ranging from petroleum to pork.

Asia's troubles have already sent the trade deficit climbing, though in June the gap between exports and imports narrowed slightly to $14.2 billion, the Commerce Department said Tuesday.

In July, energy prices were unchanged as declines in fuel oil, gasoline and natural gas prices offset a small rise in electricity costs. Gasoline prices were 10 percent lower than a year earlier.

Food prices rose 0.2 percent. Fresh vegetables cost 1.3 percent more than the month before, with the seasonally adjusted price of tomatoes shooting up 11.3 percent. Poultry prices jumped 0.7 percent, reflecting a drought and heat wave across the South. Pork and beef costs rose modestly while coffee prices, a problem last year, fell 0.3 percent.

Excluding the volatile food and energy sectors, prices rose 0.2 percent. For the year, these “core” prices were advancing at a 2.4 percent annual rate, compared with 2.2 percent for all of 1997.

Computer prices fell 6 percent. Clothing costs declined 0.3 percent, reflecting a surge in inexpensive Asian imports.

Because dealers suspended buyer incentive programs during the General Motors strike, new car and truck prices jumped 0.5 percent, the steepest rise since April 1995. But, these prices had fallen in previous months, reflecting competition from Asia, and were still 0.7 percent lower than a year earlier.

Tobacco costs jumped 2.6 percent and were up 12.9 percent for the year.

“Smoking consumers continue to pay for lawsuit settlements to protect them from themselves,” said economist David Orr of First Union Corp.

The cost of medical services rose a modest 0.2 percent in July, but so far this year medical inflation is running at a 3.6 percent annual rate. Last month, hospital costs jumped 0.6 percent, the largest rise in two years.

Air fares rose 3.2 percent in July but were only 1.8 percent higher than a year ago.

This Article Compliments of...

Iotron Technology Inc.

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