Consumer prices drop locally, reflecting deeper recession here

By Drew DeSilver
Seattle Times business reporter

7/17/03


Washington State - Finding work may be hard in the Puget Sound area, but at least it's not getting any more expensive to live here than it already is.

That was the word yesterday from the U.S. Labor Department, which reported that regional consumer prices last month slid 0.3 percent from their level in April. Compared with June 2002, prices rose just 1.2 percent — the smallest year-over-year increase in at least five years.

Of the major spending categories tracked by the department's Bureau of Labor Statistics, only housing prices rose regionally, and they were up just 1 percent from April.

Nationally, the U.S. Consumer Price Index rose a seasonally adjusted 0.2 percent in June. The closely watched index had fallen each month since March, causing some observers to worry about the prospects for deflation — an economically dangerous long-term slide in prices. Yesterday's report eased, but did not fully erase, those concerns.

The federal government reports monthly on inflation nationally and in New York, Los Angeles and Chicago. Every two months it surveys prices in 11 other major metropolitan areas; since December 1997 that survey has included the Seattle-Tacoma-Bremerton region.

The index measures how much a "basket" of goods and services costs now compared with a base period, currently 1982-84. The basket includes everything from breakfast cereal to cable-TV service, cars to haircuts.

For example, the June index for the Seattle area was 191.7, down from 192.3 in April. That means a market basket that cost $100 in 1982-84 would have cost $192.30 in April and $191.70 last month.

Gasoline posted the biggest price declines locally, falling 13 percent since the last survey in April. Food and beverage prices fell 0.3 percent, clothing prices fell 1.9 percent, and the cost of medical care fell 0.4 percent.

The pricing picture in June was somewhat different when compared with a year earlier. Gasoline prices were 7 percent higher and medical costs were up 4.9 percent, for example, while clothing prices were down 5.4 percent and housing was up 0.7 percent.

Food and energy prices tend to be the most volatile; excluding them produces what's often called the "core inflation rate." Regionally, core inflation was 0.3 percent last month; nationally, it was flat, which economists said suggested that prices for other goods and services are largely under control.

That, in turn, likely will bolster Federal Reserve Chairman Alan Greenspan's resolve — reiterated yesterday before a Senate committee — to keep short-term interest rates at low levels, and perhaps drop them even further.

Yesterday's consumer-price report "really does validate the Fed's view that it can keep interest rates low for some time without worrying too much about inflation," said Stephen Cecchetti, a Brandeis University economics professor.

The slower pace of inflation regionally reflects the Puget Sound area's sluggish economy, said Joseph Phillips, dean of Seattle University's Albers School of Business and Economics.

"The recession has been much deeper here versus the national economy, and that by itself would explain some of the difference from the national numbers," Phillips said.

In addition, Phillips noted, inflation regionally ran ahead of the national rate for much of the 1990s; the current reversal is in part a normal correction, he said.

"If you have one part of the country where prices are running significantly ahead of the rest of the country for a long period of time, that's going to generate forces that will eventually bring them back into alignment," he said.

In fact, prices rose faster in the Seattle area than in the nation as a whole from December 1998, the first month for which year-over-year comparisons are available, through August 2002 (except in February 2000, when they were the same). But since last August, the local 12-month inflation rate has been below the national rate.

However, Phillips cautioned that metro-area inflation numbers aren't as statistically solid as national figures, because of the smaller sample size and greater chance that purely local conditions — a pipeline break, a truckers strike — could affect the results.

"I don't find the local numbers to be quite as reliable," he said. "I think you're more likely to find them being revised (later in the year) than numbers at the national level."

Drew DeSilver: 206-464-3145 or ddesilver@seattletimes.com

Information from The Associated Press was used in this report.