The government's index of consumer prices did not rise in July, the first time in 13 years that the monthly inflation indicator has stood still.
But economists quickly warned that the stable July price report was misleading. Inflation is not stemmed.
A sharp, one-time decline in home mortgage rates between June and July offset an upward surge in food prices and more moderate increases in most other consumer categories. These inflationary trends are expected to continue into the fall.
Nevertheless, administration officials chose to enjoy the good news while it lasts, while Republican presidential candidate Ronald Reagan zeroed in on the pessimistic price outlook for the future.
Reagan aide Martin Anderson called the July consumer price index "the calm eye of the hurricane." Except for the drop in mortgage rates, inflation would have remained in the double-digit range, Anderson said.
The consumer price index for the Washington metropolitan area rose 2.5 percent during June and July, the Labor Department reported, slightly less than the rate for the previous two-month period. [Details on Page F7.]
Administration officials agreed that stability in consumer prices will not last.
Just as the upward burst in mortgage rates earlier this year distorted the index, making inflation look worse than it was, so does the recent plunge in rates conceal problems ahead, said Courtenay M. Slater, chief economist of the Commerce Department.
Mortgage rates have been rising in August, and food prices are expected to escalate this fall because of cutbacks in the meat supply and the effects of the summer drought.
Even without the drop in mortgage interest rates the July price index is welcome, said Charles L. Schultze, chairman of the Council of Economic Advisers. "All in all, it's obviously good news."
The inflation rate for all items other than mortgage interest had been about 7.5 percent for the three months ending in July, a vast improvement from the 12.5 percent rate for the first three months of 1980, he and Slater said.
Thanks to the stable inflation picture, the average take-home pay for American workers in July was virtually unchanged from the previous month. Over the year, average after-tax earnings are down 7.4 percent after adjustment for inflation.
Before July, the CPI had increased by at least 0.9 percent on a seasonally adjusted basis in each of the preceding 18 months.
Many economists in and out of government say the current underlying inflation rate that consumers experience is in the 8 to 10 percent range and headed upward.
The swings in housing and interest rates have distorted the price index all year, said Michael Evans, a private economic consultant. "Most people only buy a house every seven or eight years. They go to the grocery store every week, and those prices are up," he said.
The July index for housing costs dropped 0.7 percent, primarily due to a 5.7 percent monthly decline in mortgage interest rates. Housing is by far the largest category in the price index and large swings in this component have a particularly sharp impact on the index.
Within the housing category, household fuel prices continued to increase, but not as much as in the previous two months. Natural gas prices rose 1.4 percent in July, electricity rose 1 percent, while fuel oil prices rose 0.3 percent.
Prices of grocery store foods rose 1.2 percent in July, led by beef, pork and poultry prices, which had declined during the previous three months. Sugar prices rose 3.2 percent in July, as a result of a short worldwide supply, and the index for fruits and vegetables also rose sharply by 1.8 percent.
The beef supply has not been growing fast enough to keep up consumer demands, but Agriculture Department officials had hoped that pork and poultry stocks would be large enough to counteract rising beef prices this fall. That is not happening.
Drought killed an estimated 1 million chickens this summer, and poultry and hog farmers have cut back their flocks and herds in response to declining consumer prices.
The Agriculture Department yesterday raised its forecast of retail food inflation for 1980 from the previous 8.5 percent to 8.9 percent. Even with the increase, the year-long inflation level for food is certain to be better than in 1979, when the rate was 10.9 percent. But a rising trend is underway that will carry into 1981, economists say.
Prices for medical care rose 0.7 percent in July, entertainment prices were up 0.8 percent, and clothing and apparel prices rose 0.4 percent, all at a slightly higher rate than in the previous two months. The costs of other goods and services rose 0.5 percent, less than the rate in June.
Transportation prices were up 0.4 percent, reflecting large increases in mass transit fares in several cities included in the index sample. Prices of new and used cars rose 0.9 and 0.7 percent, respectively.