Consumer Prices Rise 0.3% in Month; Annual Rate Lowest Since 1967
Consumer prices rose 0.3% in October, a slight increase over the previous month, the Labor Department reported Friday. But inflation remains on course for the lowest annual rate in nearly 20 years, and most economists see moderate inflation continuing for the foreseeable future.
Through last month, inflation in 1985 has been running at an annual rate of 3.3%, compared to the 1984 rate of 4%. If this year’s pace is maintained through December, inflation for 1985 will be the lowest since a 3% rate in 1967.
The October inflation rate, which broke a string of five consecutive months in which the consumer price index increased by only 0.2%, reflected higher prices for new-model-year autos and slightly higher food prices.
In a companion report that computes the consumer price index for urban wage earners from a slightly different mix of spending patterns, the Labor Department reported a 0.2% increase in October. By that same measure, inflation for wage earners in the Los Angeles-Long Beach-Anaheim area jumped 0.7% for October and 5.8% over the past 12 months.
“There’s just not much inflation there at the moment,” said Robert Gough, a senior vice president of Data Resources, a Lexington, Mass., economic forecasting firm that, like most others, has predicted low inflation for some time to come.
Increase Expected
Gough said the modest blip upward in October was expected because of the new car models and the end of the low-interest auto financing plans that sent car sales soaring in August and September.
Robert F. Wescott of Wharton Econometrics in Philadelphia saw “continued good news for consumers” in the report and agreed that “special factors,” especially the jump back to more normal auto finance charges, meant that October’s increase in the consumer inflation rate would prove only temporary.
“We are expecting to see oil prices drop further in the spring,” Wescott said. “That should really keep the 1986 CPI very moderate also. We’re looking for a fifth straight year of very moderate inflation.”
Wescott also called it “a very good sign” that the cost of services, which had jumped as much as 0.8% in July and have advanced 6% over the past year, seem to have moderated to a 4.5% annual rate over the past three months, advancing 0.4% in October. Because service prices have tended to increase faster than the basic rate of inflation, their moderation suggests that less inflation is on the horizon, Wescott said.
“We’re really quite optimistic for the next three to 12 months,” added Donald H. Straszheim, chief economist of Merrill Lynch, Pierce, Fenner & Smith of New York. “The key point is that the fundamentals on inflation still look very positive.”
Inflation Not an Issue
Gough of Data Resources pointed to “the almost phenomenal stability across all price categories. That is very encouraging. It indicates that, on the whole, inflation really isn’t an issue.”
By category, inflation ranged only slightly, from 0.2% for transportation--where lower gasoline prices and cheaper used cars offset a 0.5% increase for new cars and a steep 1.9% increase in auto finance charges--to a high of 0.6% for apparel and for entertainment.
Food prices were up 0.4%, compared to 0.3% in September. The Labor Department attributed the increase to the one-time impact of the Oct. 1 jump of $2 per proof-gallon in the federal excise tax on alcoholic beverages.
The cost of medical care, which tends to advance at a faster rate than inflation generally, increased 0.5% for the fourth consecutive month.
The housing component increased 0.3%, while a 2.4% increase in fuel oil prices was offset by 1.9% and 1.4% decreases for natural gas and electricity, respectively. In all, energy prices were down 0.8%, and the current prices for gasoline and fuel oil stand nearly 14% below their peak levels in the spring of 1981.
