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Consumer prices jump
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July 18, 2000: 1:56 p.m. ET
June consumer price index gains 0.6%, rises 0.2% excluding food and energy
By Staff Writer M. Corey Goldman
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WASHINGTON (CNNfn) - Consumer prices posted their biggest advance in three months in June, pushed higher by a surge in energy costs such as oil and gasoline, and re-ignited concern on Wall Street that Federal Reserve policy makers may not be finished with their series of inflation-fighting interest rate increases just yet.
 The Consumer Price Index, the most comprehensive measure of price changes for goods and services in the U.S. economy, jumped 0.6 percent in June after gaining 0.1 percent in May, the Labor Department reported Tuesday. Analysts polled by Briefing.com had expected a 0.4 percent gain.
Excluding food and energy costs, which tend to be more volatile from month to month, prices rose a more moderate 0.2 percent, in line with forecasts.
The numbers offered a mixed message for analysts and investors. While recent economic reports have shown the U.S. economy is slowing from its torrid 5-percent-plus rate of growth in recent quarters, inflation still remains a concern, even though rising energy prices accounted for most of last month's gain. That could sway Fed policy makers to raise rates again next month to ensure inflation remains in check.
"The relatively tame performance of core consumer and producer
prices of late, combined with clear evidence that growth has downshifted,
give the Fed no reason yet to move off the sidelines at the next (Fed meeting)," said Sherry Cooper, chief economist with brokerage BMO Nesbitt Burns Inc. Fed officials next meet August 22nd to discuss monetary policy and the progress of the economy.
A negative reaction
Financial markets retreated at the news, with all three major U.S. stock indexes sinking right after the opening bell. Bonds, however, which are typically more sensitive to signs of inflation because it erodes their fixed values, moved in the opposite direction, retracing earlier losses.
 Last month's numbers showing tame inflation had offered hope to investors that the Fed's series of rate increases, which began a year ago, would soon come to an end. The economy expanded at a 5.4 percent pace in the first quarter, below the scorching 7.3 percent growth posted in the fourth quarter of 1999, but still above what analysts and Fed officials deem a non-inflationary rate of growth.
Tuesday's report doused some of that optimism. Analysts expressed caution that recent gains in oil prices may push their way into the U.S. economy, sparking higher prices not only at the pumps but also in other areas as manufacturers begin to pass on their higher energy costs in the form of price increases.
"We're starting to see some trends that concern me," said Jeffrey Palma, an economist with UBS Warburg. "If we see continued higher energy costs, that could spill over into the core numbers, and that could undermine the good inflation backdrop we've seen." He too expects Fed officials to notch up rates again when they meet next month.
Fill 'er up
Virtually all of last month's gains came from higher energy prices. Energy costs, which account for about one-tenth of the index, surged 5.6 percent last month, the biggest increase since a 6 percent jump in April 1999. That followed on the heels of the price of oil hitting in excess of $30 a barrel last month. A 1.8 percent increase in transportation costs, mostly related to higher prices for gasoline, also lifted the index.
 Gasoline prices surged 8.8 percent, the biggest increase since an 11.1 percent jump in March. The cost of gas at the pump reached as high as $1.711 a gallon in June, a 12-month high and above May's peak of $1.575, according to U.S. Energy Department statistics. The cost of natural gas jumped 7.8 percent in June, the largest increase on record.
Transportation costs also pushed up overall prices last month. Air fares rose 1.5 percent in June and have risen at an 18.7 percent annual rate so far this year compared with a 10.9 percent increase for all of last year, Labor said. Still, Southwest Airlines Co (LUV: Research, Estimates). and US Airways Group Inc. (U: Research, Estimates) sparked a round of fare cuts across the industry last week.
Food prices, which account for about a fifth of the index, rose 0.1 percent in June after gaining 0.5 percent the month before. June's gain was led by higher prices for beef and fresh vegetables. Costs fell for fruits, chicken and pork. Tobacco prices declined 1.3 percent. Clothing costs dropped 0.6 percent, the third monthly decline in a row.
Awaiting Greenspan
Between April and June, consumer prices gained 2.6 percent and rose at a 2 percent pace excluding food and energy. Prices gained 3.7 percent from a year ago; the increase was 2.4 percent when food and energy costs are excluded.
At issue now is whether further increases in energy costs filter they way down to the retail level, lifting prices of raw goods that producers use to make the goods Americans buy. So far, that hasn't happened. A report last week showed that producer prices excluding food and energy declined in June.
To be sure, Fed officials will have a slew of additional economic numbers to pore over before they meet next month to decide whether or not the economy needs another tap on the brakes, including more figures on employment, retail sales and a new set of inflation numbers.
Even so, investors will get a more focused picture of what the Fed thinks about the economy when Fed Chairman Alan Greenspan provides his twice-yearly testimony to the Senate Banking Committee on Capitol Hill later this week. Greenspan will head to Capitol Hill Thursday and then will appear before House members for another round of testimony on July 25.
"What this sets Greenspan up for on Thursday is to say yes, there are tentative signs the economy is slowing down and inflation continues to be well behaved," said Paul Kasriel, chief economist with Northern Trust Co. in Chicago. At the same time, Greenspan will probably allude to the fact that more evidence is needed to ensure that that scenario continues, Kasriel said. 
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