- The Washington Times - Saturday, August 17, 2002

ASSOCIATED PRESS
Consumer inflation inched up in July, with lower prices providing some bargains for clothes horses and air passengers but rising prices hitting the wallets of motorists and Americans needing medical care.
The Labor Department reported yesterday that its Consumer Price Index, the government's most closely watched inflation gauge, rose by a seasonally adjusted 0.1 percent for the second month in a row.
The latest reading on the index was better than the 0.2 percent rise many analysts were expecting and provided evidence that inflation remains under control.
That's good news for Federal Reserve Chairman Alan Greenspan and his colleagues, because tame inflation gives them leeway to keep interest rates low in an effort to help the struggling economic recovery get on a firmer footing.
"Inflation looks good. It is not even flashing yellow on the Fed's radar screen," said Richard Yamarone, an economist with Argus Research Corp.
Fed policy-makers decided on Tuesday to hold rates steady but opened the door to reductions if economic conditions worsen.
In a sign of the slowing recovery, the Commerce Department said housing construction in July fell by 2.7 percent for the second straight month.
Though weaker than many analysts expected, the decline in July left the level of housing units under construction at a seasonally adjusted annual rate of 1.65 million, a respectable pace.
The slowdown comes in the face of low mortgage rates. Rates on 30-year mortgages dipped this week to 6.22 percent, the lowest level in 32 years of record keeping by Freddie Mac, the mortgage company.
"I think the weakness of the economic recovery and the weakness of the stock market had dampening effects," said Michael Carliner, economist at the National Association of Home Builders.
Consumers are still jittery. A preliminary reading from the University of Michigan showed that its consumer sentiment index for August edged down to 87.9 from 88.1 in July, economists said.
For consumers, one of the few benefits of the lackluster recovery is that many companies have little leeway to raise prices.
Companies, concerned about whether Americans' appetites will hold up amid stock market turmoil and eroding consumer confidence, have discounted merchandise and offered other incentives.
In July, clothing prices fell 1 percent, the biggest decline since April. "The declines reflect larger-than-usual end-of-the-season markdowns," said Mark Vitner, an economist with Wachovia Securities.
Air fares declined 1.3 percent, the largest drop since November. Prices for new cars and trucks were flat. Lodging costs fell 1.1 percent. Computer prices dropped 1.3 percent.
Medical costs, however, continued to rise. They rose 0.7 percent in July, the largest increase since May 1993.
For the 12 months ending in July, medical care costs are up 4.9 percent, well exceeding the 1.5 percent increase for consumer prices as a whole. During the period, hospital costs rose 8.8 percent and prescription-drug prices increased by 5.3 percent.
"Hospital and professional services prices are trying to make up for the dark days of managed care, and they are doing so with a vengeance," said economist Joel Naroff of Naroff Economic Advisors.
Education costs, including books and tuition, also continue to soar, rising 0.6 percent last month. For the 12 months ending in July, they are up 6.5 percent.
After being flat in June, energy prices rose 0.4 percent in July. Falling prices for electricity and natural gas were swamped by a 1.5 percent increase in gasoline prices and a 0.9 percent rise in fuel oil costs. Even with July's increases, gasoline prices are down 3.7 percent from a year ago and fuel oil costs are running 11 percent lower.
Food prices edged up 0.2 percent last month, after showing no change in June.
As part of yesterday's report, the government debuted a new way of measuring consumer prices in an effort to address a long-standing criticism that the index overstates inflation.
Under the new measure, prices were flat in July.
The new index, which won't replace the Consumer Price Index, is intended to better capture how consumers, reacting to rising prices for a specific product or service, may shift buying to a different, less expensive product. It is not seasonally adjusted.

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