Inflation stays tame; consumers still jittery

A modest decline in consumers' expectations and a benign inflation report Friday supports the sentiment of the nation's central bankers that the economy remains in the doldrums.

The Labor Department said its Consumer Price Index, the government's most closely watched inflation gauge, rose a seasonally adjusted 0.1 percent for a second straight month.

The reading provides fresh evidence that inflation remains under control. But economists would have preferred a sharper increase because that would indicate businesses feel confident they can raise prices without hurting consumer spending.

Friday's economic news "reinforces the point that the economy is very fragile and may need help," said Mark Zandi, the chief economist at Economy.com.

But the Fed opted to hold rates steady this week, though it gave a clear signal it's prepared to cut rates -- perhaps in September -- if the economy worsens.

With inflation under control, the Federal Reserve Board has the green light to ease interest rates to help jump-start the economy.

In a fresh sign of the slowing recovery, the Commerce Department said housing construction in July fell 2.7 percent for a second straight month.

Though weaker than many analysts expected, it kept the level of housing units under construction at a seasonally adjusted annual rate of 1.65-million, a respectable pace.

"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.

Florida continued to lose jobs in July, but the unemployment rate held steady at 5.3 percent, state officials said. The state counted 7.1-million nonagricultural jobs last month, a loss of 49,100 from June, but up 17,600 from a year ago.

The Tampa Bay area remained the state's largest job market, with 1.2-million jobs, but reported a loss of 4,900 jobs from the prior month. The unemployment rate in the Tampa Bay area fell from 4.7 in June to 4.3 percent in July.

The state numbers are adjusted for seasonal swings in employment but the local numbers are not, so they aren't directly comparable.

Consumers are still jittery. A preliminary reading from the University of Michigan showed its consumer sentiment index for August edged down to 87.9 from 88.1 in July, economists said.

The drop comes as no surprise in the aftermath of the July stock-market rout and the ongoing fallout from corporate accounting scandals. Investors have lost billions of dollars in this year's market swoon. In fact, some economists think consumers are more pessimistic than the survey indicates.

On Wall Street, the Dow Jones Industrial Average closed down 40.08 points at 8,778.06, but still scored its second straight weekly advance -- the first in five months.

For consumers, one of the few benefits of the lackluster recovery is that many companies have little leeway to raise prices.

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 dipped 1.3 percent. Prices for new cars and trucks were flat.

Medical costs, however, continued to rise. They rose 0.7 percent in July, the largest increase since May 1993.

For the 12 months ended 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.

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, gas prices are down 3.7 percent from a year ago and fuel oil costs are 11 percent lower.

Food prices edged up 0.2 percent last month after showing no change in June.

-- Information from the Chicago Tribune, Associated Press and Times staff writer Helen Huntley was used in this report.

© 2006 • All Rights Reserved • St. Petersburg Times
490 First Avenue South • St. Petersburg, FL 33701 • 727-893-8111

Contact the Times | Privacy Policy
Standard of Accuracy | Terms, Conditions & Copyright