High interest rates and rising food prices sent consumer prices soaring at an annual rate of 15.2 percent last month, the highest monthly increase since the spring of 1980, the Bureau of Labor Statistics reported yesterday.
The White House moved swiftly to blame the Carter administration for the inflation rate and high interest charges. President Reagan's midyear forecast of a 9.9 percent inflation rate by year end is "still on track," deputy White House press secretary Larry Speakes told reporters on the West Coast where Reagan is vacationing.
The 1.2 percent increase in the July consumer price index reflected a long-expected rise in food prices, which were up 0.8 percent, and a 1.6 percent rise in housing costs.
News of the July price increase sent the bond market crashing further from the near record lows reached on Monday. The stock market, however, rebounded slightly after dropping nearly 10 points earlier in the day. The Dow Jones Industrial Average closed up 1.72 points.
Speakes dismissed the reaction of the markets as "a temporary state of mind." He repeated administration predictions that interest rates, a major source of concern in the financial markets, would be near the 15 percent level by the end of the year.
Consumer price increases in the Washington area were less than half the national average as a result of lower food and clothing prices and a moderation in the rising cost of housing and transportation. For the period of June and July, Washington-area prices rose 0.9 percent, an annual rate of 5.6 percent.
Last month's return to double-digit inflation is not expected to last long, an administration source said yesterday. "The underlying rate is probably between 8 percent and 9 percent," a spokesman for Reagan's Council of Economic Advisers said, adding, "Just as we did not emphasize the low rates recorded earlier this year as being reflective of the basic trend, so we believe July is above trend."
Bond and stock prices have slumped this week, despite the Reagan administration's prediction that the bond market would rally and interest rates fall in response to the president's economic program. Speakes blamed this week's decline in stocks and bonds on an increase in the nation's money supply reported Friday, and forecasts from the Congressional Budget Office that the federal deficit would exceed the president's target by $20 billion next year.
The tight money policy being followed by the Federal Reserve Board, with the administration's support, has been one factor holding interest rates up, by making credit scarce.
Fears that Reagan will be unable to bring down the federal budget deficit have been another. The CBO numbers, showing a $60 billion deficit next year, cited by Speakes, have been circulating for some weeks. Other outsiders agree that the administration's $42.5 billion deficit forecast for fiscal 1982 is too low.
However the White House spokesman yesterday called the CBO estimates "faulty" and repeated the president's commitment to his target for next year. This would inevitably entail further spending cuts in the 1982 budget, experts believe.
Rapid inflation contributed to a fall in real earnings of 0.8 percent last month. A rise of 0.4 percent in hourly earnings in July was not enough to offset higher prices.
The 1.6 percent rise in housing costs, which many experts believe distorts the consumer price index, reflects a continuing rise in mortgage costs and home prices. An index that calculates housing in a different way, estimating a rental equivalent to the cost of owning a home, showed a rise after seasonal adjustment of only 0.8 percent in July, rather than the 1.2 percent on the regular CPI.
This index was up by 9.6 percent from July 1980, rather than 10.7 percent shown by the usual index.
The food and beverage component of the CPI was up by 0.8 percent last month, compared with a rise of only 0.2 percent in June and a decline in May. Transportation costs also rose sharply in July. A 0.8 percent increase followed one of only 0.3 percent in June. The costs of medical care continued to increase rapidly with a 1.3 percent rise last month.
The consumer price index, before seasonal adjustment, stood at 274.4 in July on a base of 1967. A basket of goods costing $100 in 1967 would have cost $274.40 last month.