But OPEC Accord, Costlier Services May Bring Back Inflation : Cheaper Fuel Keeps Prices Steady in July

WASHINGTON —  A sharp drop in gasoline prices offset rising costs for food and most services in July, keeping retail prices unchanged for the month and allowing Americans to continue enjoying their greatest respite from inflation in 37 years, the Labor Department reported Thursday.

But economists said the good news may be ending soon.

Fuel prices are stabilizing, and “all the services are up,” said Dorothea Otte, assistant director of Georgia State University’s economic forecasting project.

“Over the next few months, there is going to be more inflation than we have seen in the past half year,” said Robert F. Wescott of Wharton Econometrics.

Best Record Since 1949

The zero change in the consumer price index reported Thursday followed two consecutive months of slight increases. It left that measure of inflation declining at 0.2% for the first seven months of the year, the best such record since 1949.

In the greater Los Angeles-Anaheim-Long Beach area, consumers experienced a slightly better month than the nation. July prices there dropped 0.1%, but over the past 12 months inflation has increased by 3% compared to only 1.2% nationwide since July, 1985.

The stable price level nationally reflected a 6.6% drop in gasoline prices in July, after a 3.1% rise in June, and food prices that edged up 1.3%, primarily because of the summer drought in the Southeast.

Predict More Inflation

Economists said those trends will end as drought effects subside and as gasoline prices reflect the Aug. 5 agreement by the Organization of Petroleum Exporting Countries to limit oil production.

They predicted that inflation soon will revert to its basic “underlying” rate of 3% to 4% a year.

“I’m afraid this may be the last of the good numbers” on the consumer price index, Otte said.

The expected rise in inflation can be blamed mostly on the price of services, economists said.

“The increases in medical costs are particularly worrying, and they continue to outpace the general rate of inflation by a wide margin,” said David Wyss of Data Resources Inc., the Lexington, Mass., forecasting firm.

Some Goods More Expensive

Medical costs were up 0.5% in July, and over the last 12 months surged 7.6%, more than six times the overall consumer price inflation rate during that same period.

But Wyss noted that prices of some goods are beginning to go up also, perhaps reflecting the higher dollar cost of imports after nearly 18 months of decline in the dollar’s exchange rate.

Meanwhile, oil is hovering at $15 a barrel, slightly above its midsummer low point but well below the $28-a-barrel level in early 1986.

In sum, he said, “If you take out food and energy, you’ll have inflation running at about 4%” annually.