Consumer Prices Take Biggest Monthly Drop Since 1953 in February
Plunging oil and food prices drove down the nation’s cost of living by 0.4% during February, the biggest monthly drop in consumer prices since 1953, the Labor Department said Tuesday.
In the Los Angeles metropolitan area, where rents are rising rapidly, the cost of living fell by a more modest 0.1%.
Energy costs for consumers will fall for another month or two as cheaper crude oil cuts prices at the gasoline pump, economists said. They added that the cheaper gasoline and abundant food supplies will keep overall inflation at a low level this year despite the rise in the price of some imported goods, notably Japanese cars and other merchandise.
Gasoline prices dropped 5.9% in February and food prices fell 1%, with meats, fresh fruits and vegetables and eggs costing less than a month before. Although food prices fluctuate from month to month, the general trend is one of very slow increases. Because of large surpluses and a series of successful crops, the cost of food has risen less than the overall inflation rate for the last seven years.
The national price decline in February contrasted with an increase of 0.3% in living costs in January. The retail price index, which measures the buying power of urban residents, last fell in December, 1982, when it declined 0.3%. But the size of February’s decline, 0.4%, has not been matched since November, 1953.
Drop in Gasoline Prices
The overwhelming impact comes from the reduced cost of gasoline, which accounts for about 5% of consumer spending. And there is more good news to come for consumers.
In February, oil companies were refining gasoline from crude oil costing $25 a barrel, and the price has now dropped to the $12 range, said Arnold Safer, president of Energy Futures Group, a consulting firm based in Bethesda, Md. There is a month’s lag between the lower crude prices and the reduced retail cost at the gasoline pump, said Safer, who expects additional declines in the cost of living for March and April.
“The collapse of oil prices has burst the bubble of inflationary expectations, setting the stage for improved growth and productivity,” said Jerry Jasinowski, chief economist for the National Assn. of Manufacturers. The Labor Department previously announced that wholesale prices, which foreshadow consumer costs, dropped 1.6% during February, the biggest decrease on record.
Falling prices for basic commodities such as fuel and food can provide a stimulus for the rest of the economy, which has been growing too slowly to create enough jobs to reduce the unemployment rate, which stands at 7.2%.
New orders for manufactured goods declined 0.5% in February, the Commerce Department reported Tuesday. Despite the overall decline, orders have risen for steel, construction equipment and computers, suggesting an economic rebound later in the spring, Jasinowski said.
‘Inflation Very Subdued Now’
“Even if you take away food and energy, there is not much inflation in the rest of the economy,” said Lawrence Chimerine, president of Chase Econometrics of Bala Cynwyd, Pa., a forecasting and consulting firm. “Inflation is very subdued now,” he said. The firm expects the cost of living to rise between 2.5% and 3% this year, compared to 3.8% in 1985.
Across the nation, housing and clothing expenses dropped during February, while costs rose for medical care and entertainment. The national consumer price index reached 327.5, meaning that a typical “market basket” of goods and services priced at $100 in 1967 cost $327.50 last month.
In the Los Angeles-Long Beach-Anaheim area, the consumer price drop of 0.1% contrasted with a rise of 0.2% in January. Prices did not fall as far in Los Angeles as in the rest of the nation because the local cost of housing rose sharply.
“The rental market is pretty tight in Los Angeles,” said Faith Heinemann of the local office of the Labor Department’s Bureau of Labor Statistics.
A combination of goods and services costing $100 in Los Angeles in 1967 was priced at $326.60 last month. Figures for San Diego are compiled every other month and will be available in April.
Some inflationary pressure resulted from the fall of the dollar in relation to the Japanese yen and other foreign currencies. This makes cars, video recorders and a host of other products cost more for American buyers. However, the price rises are likely to come slowly, and in small doses, because foreign firms are anxious to keep their share of the U.S. market.
