Consumer Prices Up a Modest 0.3% in November

Aided by another drop in energy prices last month, consumer prices rose a modest 0.3% in November, holding to the pattern of low inflation set over the last six months, the Labor Department reported Friday.

The slight price increase was almost exactly in line with market expectations, and economists, who have been predicting continued low inflation, look for more of the same at least through the first half of next year.

Because last winter’s collapse in petroleum prices pushed the consumer price index into negatives during the first six months of the year, the annual rate of inflation for 1986 has been running at levels unknown since the early 1960s. Through November, the inflation rate this year has been a mere 0.9%; since November, 1985, the rate has been 1.3%.

Index Up 0.3 Points

Before seasonal adjustment, the consumer price index, from which the Labor Department computes monthly price changes, rose by 0.3 points to 330.8 in November. The index is developed from a base of 100 in 1967, meaning that a selected cross section of consumer goods costing $100 in 1967 now costs $330.80.

Also on an unadjusted basis, consumer prices in the Los Angeles-Long Beach-Anaheim metropolitan area fell a steep 0.7%, after a 0.2% decline in October. This contrasted with a 0.1% increase in consumer prices nationwide before seasonal adjustment. Over the last 12 months, however, inflation in the Los Angeles area has been running at 2.7%, contrasted with 1.3% nationwide.

At the White House, spokesman Larry Speakes was ready with what has become a monthly celebration of the continued low inflation. “As 1986 comes to a close,” he said, “it will be remembered as a year when inflation rose at a slower rate than in any year since 1964. With personal income rising steadily and inflation held in check, American workers are seeing higher earnings buying more goods and services.”

Prices Gained 1.2% in ’64

Consumer prices rose only 1.2% in 1964.

By contrast, prices rose 3.8% in 1985 and 4% in 1984. Economists said they expect inflation to return to about those rates if oil prices stabilize near current levels.

During November, energy was still pushing the index downward, offsetting small increases in prices for food, new cars, medical care and most services. Gasoline fell 0.6%, after a 2.3% drop in October, which in turn offset a 2.5% increase the month before. Home heating oil fell 1.3% and natural gas 2.3%. Since the beginning of the year, gasoline prices have dropped 31.2% and fuel oil has dropped 34.1%.

“We expect that the energy decline should begin to stabilize about now, so we can look to inflation of about 4% next year, instead of the 1.2% we’ll probably get this year,” said Stacy Kottman, a price analyst at the Georgia State University economic forecasting project.

Kottman warned that prices could go even higher in 1987 “if OPEC can get its act together and begin to push oil prices higher, but it will be very difficult for them to push the price much higher.”

Once-Feared Cartel

The Organization of Petroleum Exporting Countries, the once-feared oil cartel that dictated oil price increases during the 1970s, is again meeting in Geneva in an effort to effect a modest price rise from the current $15 to $16 a barrel to about $18. (Details in Business.)

Robert Gough, senior vice president of Data Resources Inc., suggested that consumer prices will not be affected much even if OPEC does engineer a price increase. “The immediate problem facing OPEC isn’t so much an agreement in Geneva as the excess oil stocks being piled up in tankers, terminals and supply depots all over the world,” he said.

Gough said his firm now estimates that 200 million to 300 million barrels in excess inventories of crude oil have been piled up by governments and oil companies worldwide in the last year.

“It took six to eight months to build that up,” Gough said. “So if OPEC manages to get the production rate to fall slightly and demand stays the same, it would take at least six to eight months to work off that inventory, so any agreement they make won’t be felt in the CPI for many months--at least until next summer, when demand may pick up.”

Energy Price Declines

According to current Labor Department statistics, all inflation since November, 1985, would have been 3.9% if the energy price declines had not occurred and energy prices were simply unchanged during the 12-month period.

John Lichtblau, an oil industry analyst with Petroleum Industry Research Assns. Inc., generally agreed that oil prices, the major influence on consumer prices in 1986, probably would have little or no impact in 1987.

He also noted that excess inventories had been piled up, allowing oil companies and consumers alike a cushion against almost any price increase that OPEC tries to impose. He warned, however, that companies would be careful not to draw down inventories too rapidly if prices rise, for fear of being caught short if demand should rise sharply later.

In consequence, the effective consumer price of oil likely would change very little, at least through the spring, Lichtblau predicted.

“In any case,” he added, “OPEC is not in a position to push prices up much. The $18 they are aiming for is not much higher than oil prices were last spring and even if they can impose it, $18 would be well below the prices they were getting in January and February of this year.”