Consumer prices jumped back to double-digit rates last month as sharp increases in the cost of food, gasoline and housing ended a seven-month period in which inflation ran at an annual rate of slightly more than 3 percent, the Labor Department reported yesterday.
The Consumer Price Index rose a full percentage point in May--a 12 percent seasonally adjusted annual rate. It was the largest monthly increase since last September.
Over the latest 12 months, as the economy plunged into a deep recession, the CPI rose 6.7 percent, compared with 9.8 percent during the previous 12-month period.
The CPI for all urban consumers rose to 287.1 in May, meaning that a market basket of goods and services that cost $100 in 1967 now costs $287.10. The CPI for urban wage earners and clerical workers, which is used in making cost-of-living adjustments in most federal retirement programs and many private labor contracts, rose to 286.5.
Murray L. Weidenbaum, chairman of the president's Council of Economic Advisers, said yesterday the 6.7 percent figure indicates "substantial progress has been made in reducing inflation." But he added that the new report "certainly shows inflation is still a serious problem facing the economy." House Speaker Thomas P. O'Neill Jr. (D-Mass.) used the new figures to attack the administration's economic program, saying, "We have a new definition for Reaganomics: double-digit inflation and double-digit unemployment." The unemployment rate reached 9.5 percent in May, the highest in 41 years.
But few private economists believe the CPI will continue to go up as rapidly as it did in May, though the June increase could also be large. Generally, private forecasters expect consumer prices to rise at a 6 percent to 7 percent rate in the second half of this year.
Economist Allen Sinai of Data Resources, Inc., an economic consulting firm, called May's jump in the index "a temporary interruption in the great improvement on inflation we've been having. The back of double-digit inflation has been broken in a permanent way but we're bound to see occasional months like this."
Separately, the Commerce Department said new orders for durable goods placed in May with manufacturers rose 1.4 percent, or $1.1 billion, to a seasonally adjusted $78.7 billion. It was the third increase in the last three months, an additional indication that the economy may be stabilizing after declining since last July, analysts said.
In particular, new orders for primary metals rose 3.7 percent following a 4 percent increase in April. Prior to April, orders in this hard-hit sector, which includes the iron and steel and copper industries, had fallen for eight consecutive months.
However, new orders for non-defense capital goods--equipment used by business--dropped by $1 billion, or 4.7 percent, from April. Many companies, squeezed by the recession and falling profits, are still cutting back investment plans. With interest rates remaining so high, some forecasters are beginning to revise downward their expectations for real economic growth in the third quarter.
Most of the surge in the rate of increase in consumer prices was due to a turnaround in gasoline prices. From March, 1981, to last April, gasoline prices fell nearly 15 percent but then rose 0.9 percent in May. However, because of lags in collecting some information about price changes, the 0.9 percent increase understates the actual rise for the month, which according to some estimates may have been as high as 3 percent. Much of the additional change will likely show up in the June index, analysts said.
Food and beverage prices rose 0.8 percent for the month, the largest monthly increase since last September. Grocery store food prices climbed even more sharply, up 1 percent, largely as a result of higher prices for meats, poultry, fish, eggs, and fruits and vegetables. Grocery store food prices rose 4.5 percent in the latest 12 months.
The housing portion of the index, which accounts for 46 percent of the total, went up 1.4 percent. Home financing costs jumped 1.7 percent as a 2.6 percent increase in house prices was partially offset by a 0.8 percent decline in mortgage interest rates, the Labor Department said.
An experimental form of the CPI, which uses a rental equivalence approach to housing costs rather than one based on purchase prices and mortgage interest charges, showed a 0.6 percent overall rise for May compared with the official 1 percent increase.