US inflation rate: saying farewell to double digits?

Figures may not lie but they certainly need interpreting, so far as the government's latest rendition of the consumer price index (CPI) is concerned. That index, reports the US Labor Department, jumped a relatively high 0.7 percent in May -- 8.4 percent at an annual rate -- mainly because of a hefty rise in the cost of buying and financing a home.

Most Americans, in fact -- benefiting from lower grocery store and gasoline prices -- experienced an inflation rate last month considerably lower than the CPI's bald figures indicate.

Only 6 percent of Americans, according to government officials, are involved in buying a home at any one time and they, no doubt, are shockingly aware of what inflation has done to housing costs.

But the weight given to these costs in the socalled All Urban Consumers CPI -- the measure commonly cited for monthly inflation figures -- overstates inflation for the great bulk of citizens.

An "experimental" version of the CPI, said a Labor Department official -- designed to reduce the weight of housing and mortage costs and to put the CPI into better perspective -- shows prices to have climbed only 0.4 percent in May.

Even when the 0.7 percent CPI figure is factored in, americans have something to cheer about. At long last the nation has broken down through the double-digit level into inflation that is lower than 10 percent, at least as measured by the CPI.

From May 1980 to May 1981, reports the Labor Department, consumer prices rose 9.8 percent. Over the first five months of 1981 the increase has been even lower, running at 6.5 percent.

This compares with an inflation rate of 12.4 percent for all of 1980 and 13.3 in 1979, the highest level since 1946.

Lest cheering be unrestrained, the Labor Department notes that the money an average worker has left to spend after taxes and inflation dropped by 0.4 percent in May and stands 2 percent lower than a year ago.

Part of the reason is a sharper social security tax bite this year. Maximum payroll tax in 1981 is $1,975.05, compared with $1,587.67 last year.

No offsetting decline in personal income taxes has yet taken place, as Congress and the White House jockey over details of a tax cut bill.

This means that taxes and inflation combined still outweigh whatever wage hikes the average worker receives.

For the rest of the year, some economists believe, the US may be in the paradoxical position of having a CPI lower than the nation's underlying rate of inflation, which now appears fixed at no lower than 9 percent.

The "bedrock" of inflation, says Barry P. Bosworth, former director of the White House Council on Wage and Price Stability and now a senior fellow at the Brookings Institution, is influenced by what happens to labor costs throughout the economy.

"Compensation per man-hour," Mr. Bosworth says, "when adjusted for productivity gains of 1 to 1.5 percent, comes out at about a 9 percent annual rate of growth." Employers must cope with this steady rise in labor costs when they set prices for their goods or services.

"There are no signs of this [rate of growth] slowing down," says Bosworth, "though, on the other hand, it is not speeding up."

With food and energy prices now declining -- and with housing costs possibly flattening out -- the consumer price index is bumping down against this bedrock of the underlying inflation rate and, on a month-to-month basis, could run even lower.

So far, analysts point out, it is not President Reagan's economic policies that are pulling down the inflation rate, but rather the good fortune of lower food and oil prices.

Further progress on consumer prices should, eventually, help to reduce the underlying inflation rate by moderating the upward spiral of wage costs.