‘86 Inflation Lowest Since ‘61: Consumer Prices Up Only 1.1% : Increase Skewed by 60% Plunge in Crude Oil Costs

Americans last year saw their biggest respite from inflation in 25 years, the government reported today, as consumer prices rose only 1.1%.

The annual increase in the Labor Department’s consumer price index--the lowest since the 0.7% inflation of 1961--was skewed by a 60% plunge in crude oil prices that followed last winter’s collapse of the OPEC cartel.

As a result, retail prices for gasoline last month were 30.7% below their level of December, 1985. Home heating oil prices were down 29.9% while natural gas and electric utility costs fell 3.3% over the year.

Except for energy, consumers found little relief from inflation. Prices rose 5.8% for new autos, 3.7% for food, 1.8% for housing, 0.9% for clothing and 3.4% for entertainment, the Labor Department said. Used-car prices fell 5.1%.

Housing Boom

Excluding energy, the department said, consumer prices in 1986 rose 3.8%, contrasted with annual increases, minus energy prices, of 4% to 4.5% from 1982 through 1985.

Meanwhile, the Commerce Department reported today that low mortgage rates last year produced the biggest boom in the housing market in eight years. Construction began last year on 1.81 million new homes, a 3.7% increase over 1985 and the highest number of new starts since 1978, when ground was broken on 2.02 million new homes and apartments.

For this year, the White House is forecasting that consumer prices will rise at an annual rate of 3.8%, the same rate as in 1983 and 1985. Most private economists predict inflation will be closer to the 4% rate of 1984.

“We are moving gradually into an inflation environment that at least for a while will be in the range of 3% to 4% and will top 4% for all of 1987,” said Larry Chimerine, president of Chase Econometrics.

Declining Dollar

In addition, the continuing decline of the U.S. dollar as valued against the Japanese yen and other foreign currencies could produce higher prices for clothing, automobiles and entertainment commodities such as stereos and television sets.

Indeed, the December figures indicated that inflation is already creeping back up. Overall consumer prices rose at a seasonally adjusted rate of 0.2% from November, equivalent to an annual inflation rate of 2.9%.

Energy prices, which had held steady in November despite increases at the wholesale level, began rising. Gasoline costs edged up 0.7%, while home heating oil prices rose 0.7%.

Food prices rose 0.2% last month after a 0.5% increase in November, with gains registered across a wide range of products.

Double-Digit Unlikely

Fruit and vegetable prices were up 0.1%. Prepared food prices rose 0.5%. Beef, poultry, fish and egg prices fell 0.1% over the month.

Economists maintain that there is little chance of the double-digit inflation rates of 1974 and 1979-80 recurring this year. Those increases had their roots in first a doubling and then a tripling of crude oil prices by OPEC members.

As consumers suffered then, they benefited in 1986 when crude prices fell from $28 per barrel in November, 1985, to below $10 last July. As oil prices have climbed back up to $19 a barrel in recent months, the consumer price index likewise has resumed its upward spiral.

Meanwhile, retail food prices have been climbing at an annual rate of 2.7% over the last three months. Housing costs have risen 4.1% since September. Medical costs have been skyrocketing 7.1%.