WASHINGTON — Retail apparel prices plunged 1.2 percent in July — the biggest decline in nearly eight years — driving a slowdown in the core inflation rate and elevating investors’ confidence that the Federal Reserve Board will not increase interest rates in the near future.
Women’s apparel prices fell by 1.9 percent in July on a seasonally adjusted basis and accounted for the lion’s share of the overall apparel price decline.
The overall Consumer Price Index, a closely watched inflation gauge at the retail level, increased 0.4 percent in July, slightly higher than a 0.2 percent rise in June, according to the Labor Department, which released the report Wednesday. But stripping out volatile food and energy prices, the “core” inflation rate rose just 0.2 percent in July, after increasing by 0.3 percent in each of the past four months.
Coupled with the Producer Price Index released Tuesday that also showed a decline in core prices, the news on the consumer price front is good for merchants concerned that higher prices on consumer goods, coupled with soaring gas prices, could hit consumer spending. Core consumer prices have risen 2.7 percent since July 2005.
“It is an indication that inflationary pressures are moderating,” said Ken Beauchemin, U.S. economist at Global Insight. “It is certainly going to be taken as good news by the Fed. The markets could take this decrease in the core rates, along with the Fed’s recent suspension of a long tightening campaign, as evidence that inflationary pressures are diminishing.”
The Federal Reserve Open Market Committee halted a string of 17 interest rate hikes for the first time in two years when it met last week, saying economic growth had slowed as a result of its interest rate increases and rising energy prices. The committee will meet again next month to assess economic activity and determine whether to raise or maintain the rates at current levels.
“Right now, the housing sector is moderating, job growth is slowing and the growth of home prices is slowing, which means consumer spending down the road will slow,” said Rajeev Dhawan, director of the Economic Forecasting Center at Georgia State University. “All of this calls for a slowdown in the second half, when I expect the GDP growth rate to fall below 2 percent and this will make the Fed pause in September and then permanently by late fall.”
Related Articles
You May Also Like
Deflationary pressures on retail apparel prices drove the core rate down, according to Beauchemin.
“Certainly, the downward move in the apparel prices helped out a lot, given that there has been considerable upward pressure on property rents and transportation costs, particularly air fares,” he added.
Several factors have contributed to the long-term deflation in apparel prices, including low-priced imports and consolidation in the sector. But Jessica Penvose, an economist at the Bureau of Labor Statistics, said, “We feel the huge decrease in apparel prices in July is just compensation for an anomaly in June. When we make substitutions, we tend to see price increases because the substituted item on the floor is usually newer and has not been discounted as heavily as an older item.”
Within the women’s area, retail prices on underwear, nightwear, sportswear and accessories fell 2.4 percent in July, while prices on suits and separates also declined 2.4 percent and prices on outerwear fell 1.9 percent. Prices on dresses dipped 0.1 percent, while girls’ apparel prices dropped 3 percent.