Consumer prices inched up 0.2 percent in July, but orders by businesses for big-ticket factory goods plunged as inflation continued to slow amid signs of a weakened economy.
For the past 12 months, the consumer price index has risen at a 3.6 percent rate, its slowest pace since February, the Labor Department reported. Food prices have risen little in the past five months and gasoline prices dropped 0.4 percent in July. For the past three months, inflation was up at a 2.5 percent compound annual rate.
In a separate report, the Commerce Department said new orders for durable goods fell 2.8 percent, largely because of a decline in defense orders, although most industries saw orders drop.
The Labor Department also said that gross weekly earnings of American workers fell 0.6 percent last month, adjusted for seasonal factors and inflation. Earnings had risen 0.1 percent in June and May.
"Clearly, inflation in consumer prices remains well contained," said White House spokesman Larry Speakes. "It continues on a downward course at this point, and we do not expect an acceleration in the near future. In fact, the rate of inflation is down over the last three months compared with the previous three months. Prices are backing off again in the important energy category, and we view that as very good news. On the other hand, further progress is necessary to achieve price stability."
Moderate inflation has been the one bright spot in an otherwise dreary economic picture in the last year. Inflation is not expected to accelerate in coming months because wage increases have remained low and the influx of cheap imports has provided competition to keep prices low. Oil prices are expected to remain soft because of the worldwide glut of petroleum products and the weakening of the Organization of Petroleum Exporting Countries.
However, sales of retail stores and automobile dealers have been poor in recent months, housing starts plunged in July, and orders for factory goods have been weak. Inventories have risen, suggesting that businesses will not contribute to economic growth by increasing their stocks.
Capital spending may also decline because of slow business and consumer demand, economists said.
Food and beverage costs rose 0.1 percent in July, following a 0.1 percent increase in June and a 0.1 percent decline in May. The cost of food at grocery stores rose 0.1 percent, the first increase since February, Labor said. Fresh vegetable prices, which had declined between April and June, jumped 6.5 percent in July. Fresh fruit prices, however, dropped 4.3 percent.
Prices for beef and poultry declined while costs of pork, fish and eggs rose. Beef prices have dropped every month this year and are 7.4 percent below their level last December, Labor said.
Price indexes for cereal, bakery products and dairy products all were unchanged last month.
Used car prices declined, as did costs for gasoline, which dropped for the first time since February. The index for gasoline prices is now 11.4 percent below its peak of March 1981.
New car prices continued to rise, increasing 0.2 percent in July, which has been the average monthly increase during the model year that began last October. Automobile finance charges decreased 0.9 percent, the eighth consecutive monthly decline.
Medical care costs rose 0.5 percent, less than the 0.6 percent average monthly rise during the first six months this year. Physicians' fees rose 0.6 percent and charges for hospital rooms declined 0.4 percent.
The consumer price index was 322.8 in July, which means that goods costing $10 in 1967 cost $32.28 last month. Another CPI measure, used for indexing Social Security, other federal payments and as an escalator in collective bargaining agreements, was 319.1.
The 2.8 percent decline in new orders for manufactured durable goods followed a 3.1 percent increase in May and 3.6 percent rise in June, the Commerce Department said. Defense capital goods orders "contributed significantly" to the July decline and the increases in the previous two months.
"The broad-based plunge in durable goods orders is another confirmation that the slowdown in the economy will be around for awhile," said Jerry Jasinowski, chief economist for the National Association of Manufacturers. "Because of businesses' desire to cut inventories and weak consumer spending due to heavy debt burdens, the economy will exhibit anemic growth of about 2 percent in the third quarter. In fact, it will take some real luck to get a significant pickup in the economy by the end of the year."
New orders for transportation equipment declined 8.5 percent, machinery orders dropped 4.2 percent, and primary metals dropped 1.1 percent.
Excluding defense, new orders have increased an average of only 0.1 percent since the beginning of the year, Labor said.