U.S. July Consumer Prices Probably Rose 0.3%, Led by Higher Energy Costs
By Vince Golle and Terry Barrett
Washington, Aug. 17 (Bloomberg) -- U.S. consumer prices
probably rose in July because of higher energy costs, after being
unchanged the prior two months, analysts said in advance of a
report set for release today. Housing starts and industrial
production also probably rose last month, analysts said.
The consumer price index, which tracks the cost of goods and
services, probably rose 0.3 percent last month, according to the
average of 42 forecasts in a Bloomberg News survey.
The core rate of the CPI, excluding food and energy costs,
probably increased 0.2 percent in July, according to the survey.
The core rate rose 0.1 percent during June and May.
Since April, when prices rose 0.7 percent, ''CPI growth has
been extremely subdued,'' said Marilyn Schaja, an economist at
Donaldson, Lufkin & Jenrette Securities Corp. in New York.
In other reports today:
-- Starts of housing construction probably advanced in July
even as mortgage rates climbed closer to the 8 percent mark,
analysts said. Housing starts probably rose 2.3 percent last
month to a 1.607 million-unit annual rate, analysts said. In
June, housing starts dropped 5.6 percent.
-- Industrial production probably increased during July as
manufacturing accelerated after spending much of the past year in
the doldrums, analysts said. Output at the nation's factories,
mines and utilities probably rose 0.8 percent last month,
analysts said. In June, orders increased 0.2 percent.
The July CPI and housing reports -- from the Labor
Department and Commerce Department, respectively -- are scheduled
for release at 8:30 a.m. Washington time. The industrial output
report, from the Federal Reserve, is scheduled for release at
9:15 a.m.
Consumer Prices
June's CPI report had reflected a second monthly decline in
prices for energy, and decreases in air fares and computer
prices.
And while inflation has shown few signs of accelerating,
Federal Reserve policy-makers voted in June to raise the
overnight bank lending rate a quarter-point to 5 percent. Fears
that demand for labor could lead to increased wages and
ultimately to higher consumer prices are keeping the Fed on
guard.
So far, though, U.S. companies report little evidence of
rising wages or prices in the face of persistent difficulty
finding available workers, the Fed's latest regional economic
survey showed.
A report Friday on July producer prices showed increased
costs of goods at the earliest stages of production. Prices of
such products as chemicals, plastic resins, copper scrap, lumber
and aluminum rose in July.
''Inflation's a slow process and it's only got started at
the earlier stages of production,'' said Tim McGee, chief
economist at the Tokai Bank Ltd. in New York. ''Eventually it
will show up at the final stages or the economy will slow down
and prevent it from showing up.''
Higher Gasoline Prices
The July CPI will probably be boosted by a rise in gasoline
costs, analysts said. U.S. retail gasoline prices rose to $1.195
a gallon during the last week of July, the highest price since
October 1997 and up from $1.125 a gallon for the last week in
June, a Department of Energy survey of 800 filling stations
showed.
Also, price incentives on cars and trucks should keep new
vehicle costs down, though ''steep discounts put in place ahead
of July could add some upside risks,'' according to Merrill Lynch
& Co. economists. Merrill's economists also expect rising costs
of shelter, medical care and recreation. Meantime, computer
prices have been falling.
Computer makers such as Dell Computer Corp. and Gateway Inc.
are faced with the surging popularity of low-cost PCs that could
depress prices in the next few years. Average prices in June, for
instance, fell almost 20 percent to $890, according to PC Data.
Housing Starts
The predicted rise in housing starts would keep the pace of
homebuilding ahead of 1998's 11-year high annual rate of 1.62
million units. ''There's still a very good backlog of demand,''
said David Greenlaw, an economist at Morgan Stanley Dean Witter
in New York.
''Population, jobs and incomes are still growing briskly,''
overshadowing the impact of the rise in mortgage rates, said Don
Hilber, an economist at Wells Fargo & Co. in Minneapolis. Also,
''often, the initial rise in rates brings out a surge of buyers
that do not want to miss out should they get worse.''
In July, the benchmark 30-year fixed home mortgage rate was
at 7.63 percent, up from 7.55 percent in June, according to
Freddie Mac, the nation's No. 2 mortgage buyer. Last week, the
rate rose to 8.15 percent, the highest level since mid-April
1997.
In some places, Hilber said, builders cannot put up homes
fast enough because of material and labor shortages. ''Starts may
have peaked, but that doesn't mean they will plunge,'' he said.
Demand for houses has buoyed builders' outlook for the rest
of this year and the year 2000. Engle Homes Inc. reported a 40
percent gain in the backlog of new homes sold but not built in
the third quarter ended July 31 to a record $420.9 million.
Industrial Production
The Fed's report on factories, mines and utilities is also
expected to show that the plant-use rate, which measures
industrial capacity in use, rose to 80.7 percent in July from
80.3 during June, analysts said.
''The rebound in industrial activity reflects sustained
strong domestic demand, very lean inventories and an improving
global environment,'' according to a forecast by David Greenlaw,
an economist at Morgan Stanley in New York.
Last week, Navistar International Corp., the world's fourth-
largest maker of medium- and heavy-duty trucks, said its fiscal
third-quarter earnings advanced 54 percent because of increased
North American demand for diesel engines.
Electric utility output was also higher in July, as a heat
wave kept air conditioners running at full blast, analysts said.
Late in the month, nationwide power output set a record at 81,144
gigawatt-hours, according to the Edison Electric Institute, a
utility industry trade group. A gigawatt-hour is enough power to
run a million homes for an hour.
Bloomberg Survey
In the Bloomberg survey, estimates for July's CPI increase
range from 0.2 percent to 0.4 percent. Estimates for the increase
in the CPI core rate range from 0.1 percent to 0.3 percent. July
housing starts estimates ranged from a 1.530 million-unit annual
rate to 1.650 million. July industrial production estimates
ranged from increases of 0.3 percent to 1.3 percent. Plate-use
rate estimates ranged from 80.3 percent to 81.1 percent.
FIRM CPI CPI Housing Indust. Capacity
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