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US Prices Up Slightly in June, Easing Deflation Fears - 2003-07-16

The U.S. Department of Labor says prices on goods and services registered a modest gain in June. The news is easing fears that the United States could experience a destructive deflationary cycle.

The Consumer Price Index, or CPI, rose 0.2 percent in June amid rising costs of energy, clothing and airline fares. Excluding energy and other volatile sectors, so-called "core" consumer prices were flat for the month.

Even so, the modest overall increase reverses a recent trend that had seen the CPI dip 0.3 percent in April and hold steady in May.

James Glassman, a resident fellow at the American Enterprise Institute, says, given the sluggish U.S. economy, modest increases in consumer prices are desirable.

"At this point, it is very important that we start seeing increases in consumer prices, because that is an indication that the economy is firming up and beginning to get better," said Mr. Glassman. "These figures - and, I believe, the figures we will get in subsequent months - will put to rest the notion that the greatest economic fear for this nation is deflation or a falling price level, which is very demoralizing for businesses."

Tuesday, Federal Reserve Chairman Alan Greenspan pledged to hold historically-low interest rates at their current levels - or cut them even further, if necessary - for as long as it takes to jump-start the sluggish U.S. economy and guard against deflation. Deflation, the persistent falling of prices, is considered undesirable as it leads consumers and businesses to delay spending on goods and services, thereby further dampening demand and, ultimately, stunting economic growth.