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Consumer Prices, Retail Sales Make Slight Gains in August

Economy: Both figures fall below expectations. More experts now believe a Fed rate hike is unlikely this month.

September 14, 1996|From Times Wire Services

WASHINGTON — Consumer prices inched up just 0.1% in August and retail sales rose a tiny 0.2%, fresh evidence that could ease worries over any immediate interest-rate increase.

The Labor Department said Friday that the barely perceptible increase in its consumer price index is down from the 0.3% advance of July and matches a the gain for June. The data was adjusted for seasonal variations.

Many analysts had expected a 0.25% increase.

The Commerce Department reported that the small advance in August retail sales came after the even more lackluster 0.1% gain for July. Many analysts had been expecting an increase of about 1%.

The numbers led to fresh gains in the inflation-sensitive bond market, where yields on 30-year Treasury bonds fell below 7%. The Dow Jones industrial average, meanwhile, soared to an all-time high as relieved investors became convinced the Federal Reserve Board won't raise interest rates this month.

The administration, which is counting on a strong economy to persuade voters to give President Clinton a second term, hailed the two new reports, saying they showed the president's policies are working.

"We are continuing on a path of solid growth, low inflation," Treasury Secretary Robert E. Rubin said. "I think the outlook is very good."

Many private economists said the financial markets were correct in reading Friday's statistics as evidence Fed policymakers will not boost interest rates at their Sept. 24 rate-policy meeting, their last before the November elections.

"We had softer consumer spending and sensationally low price inflation," said Allen Sinai, chief global economist at Primark Decision Economics in New York. "That adds up to no Fed tightening."

Just a week ago, economists were taking the opposite view, after a strong employment report showed the national jobless rate had been pushed down to a seven-year low of 5.1%. Analysts said such a tight labor market might persuade the Fed to start raising interest rates to fight inflation.

Still, although most economists thing there won't be a Fed rate hike this month, many do believe there could still be one or more this year, but not until after the presidential election.

"We are starting to see clear evidence of wage acceleration, and my guess is the Fed will react to that, particularly with oil prices going up," said David Wyss, chief financial economist at DRI-McGraw Hill Inc.

The Labor Department said Friday that Americans' weekly earnings, adjusted for inflation, partly rebounded in August from a month earlier. Real average weekly earnings increased 0.7% last month after declining 1.5% during July.

Compared with a year earlier, real average weekly earnings increased 0.7%.

Food costs rose 0.3% last month, reflecting sharp increases in meat and dairy products. The big jump in milk, butter and other dairy products reflects decisions by farmers to cut back their herds in response to skyrocketing feed costs.

August energy prices fell 0.6%, the third month for them to decline, after having spiked in the spring because of short supplies.

So far this year, prices have been rising at an annualized rate of 3.2%, compared with a 2.5% rise for all of 1995. Food and energy, which have helped to restrain price increases for most of the past five years, have both been rising more rapidly in 1996.

Outside the volatile food and energy sectors, the so-called core rate of inflation has been rising at an annualized rate of 2.7% this year, down from a 3% rise for all of 1995. In August, core prices were up 0.1%, the same as for the overall increase.

In a separate report, the Commerce Department said Friday that profits of U.S. manufacturers rose briskly in the second quarter.

* RECORD HEIGHTS

Stocks soar on inflation news. A1

* LEADING THE RALLY

Technology and small stocks paced the gains. D3

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Consumer Prices

Percent change, month to month, seasonally adjusted:

August 1996: 0.1%

Source: Labor Department

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