Prices Up 0.4% in March, Stir Inflation Fears

Consumer prices jumped 0.4% in March after equal or greater increases in the previous two months, the Labor Department reported Friday, raising fears that inflation is staging a comeback.

So far this year inflation is running at an annual rate of 6.2%, double last year’s 3% rate and the highest in five years.

A steep rise in the price of clothing and continued higher fuel and energy prices spurred the latest surge in the consumer price index. But economists noted that virtually every category of goods and services showed increases, suggesting that the general inflation long threatened by the sharply falling value of the dollar has at last arrived.

Even without counting the latest energy price increases--up 26.1% so far this year after a 19.7% decline in 1986, but still 31.2% below the peak of March, 1981--inflation so far this year is running at an annual rate of 4.8%. That is noticeably higher than the 3.5% to 4% economists have estimated as the basic “underlying” rate of inflation in the U.S. economy.

Consumer prices in the Los Angeles-Long Beach-Anaheim metropolitan area jumped by 0.8% in March.

“It’s clear inflation is back, and back with a vengeance,” said Irwin Kellner, chief economist at Manufacturers Hanover Bank in New York. “All the major categories went up: housing, an amazing 1.7% increase for clothing.”

Kellner traced much of the increase to the dollar, which is buying less and less in world markets. That not only drives up the price of imports but allows domestic manufacturers who are competing with imports to let their prices rise as well.

Higher Interest Rates

Kellner said it is growing increasingly likely that the Federal Reserve Board will begin to ratchet up interest rates to support the dollar’s value on international currency markets. Higher U.S. interest rates attract foreign demand for dollars and therefore increase the dollar’s value.

“If I were running the Fed,” Kellner said, “I’d be concerned about this trend.”

Kellner pointed out that the informal “nuisance index” of price increases developed by him and Manufacturers Hanover statisticians to track the cost of ordinary items people buy day to day “continues to rise faster than the consumer price index. Over the last two years, the CPI is up only 6%--but ours is up 15%--so there must be a lot of awareness of inflation out there on the part of the average person.”

Donald Ratajczak, director of the economic forecasting project at Georgia State University, said he believes the past year’s surge in energy prices is about over and predicted more stable prices later in the year. But he, too, noted that the upward pressures are becoming more widespread through the economy.

‘Inflation More Embedded’

“In the past, if we saw a higher CPI, it was food or energy,” he said. “But now it’s all the commodities, and that’s troubling. It means inflation is getting more embedded and will get harder to root out. If it gets to interest rates, then finance costs will go up, then other prices, followed by wages. By then you are in a spiral.

“We haven’t seen a lot of that yet, but that’s the next stage if we don’t stabilize the dollar,” he said.

Martin Mauro of Merrill Lynch in New York found some comfort in the fact that the inflation rate for services, for years running above the inflation rate for goods and commodities, declined for the third consecutive month to 0.3%. He called that a sign that the economy is continuing to grow at a sluggish rate in many areas.

Another important category, medical costs, where inflation soared at 6.9% over the last 12 months, has moderated so far this year to a 5% annual rate.

Mauro said he expects inflation of about 0.3% to 0.4% per month for the rest of the year, leaving an annual increase of 4.5% to 5%.

In March, the CPI itself rose to 335.9, an increase of 1.5 points over February. That means a selected cross section of consumer goods costing $100 in 1967 cost $335.90 last month.