Prices Up 0.4% as Soft Dollar Hikes Costs of Imports
Consumer prices continued their upward march in April, rising by 0.4% for the third consecutive month, as the weakened dollar pushed up the prices of imported goods, the Labor Department reported Friday.
The increase, markedly less than the 0.7% surge in April’s wholesale prices reported a week ago, was lower than many economic analysts had feared on the basis of earlier wholesale price rises.
But the relatively good news was tempered by a Commerce Department report that increased its earlier estimate of overall inflation during the first three months of the year.
And the department released data suggesting that economic growth will be uneven at best this year, slowing down to an annual rate of 2% or less during the current quarter.
“The reports are not so much telling us something new as confirming the kind of economic environment we’re in,” Douglas Handler of Wharton Econometrics said. The rise in consumer prices “confirms we are back to a higher underlying rate of inflation than we’ve had.”
‘Not Much Demand’
Other evidence suggests that “there’s not much demand out there. We’re in a weak period now, and there could be two weak quarters before we know for sure” what the future holds, he said.
Underlying the predictions of sluggish growth were Commerce Department figures showing that orders for non-defense durable goods fell 0.9% in April and after-tax corporate profits fell 5.5%, pushed down sharply by the effects of the new tax law.
The Commerce Department also issued revised figures showing that the gross national product grew at an annual rate of 4.4% during the first quarter, a barely significant one-tenth of a percentage point higher than estimated earlier.
So far this year, inflation, as measured by the consumer price index, has been running far above the remarkable 1.1% rate recorded in 1986, the lowest in a generation.
The Commerce Department increased its estimate of overall inflation during the first three months of the year to a 4.2% annual rate, up from 3.5%. Economists expect price increases for all of 1987 to level off at a 4.5% rate.
L.A. Prices Up 0.4%
In the Los Angeles-Long Beach-Anaheim area, before seasonal adjustment, prices rose 0.4% in April.
Economists observed that the main element driving up prices has been the declining value of the dollar, which makes imported goods more costly.
The April report included a steep 1.5% increase in the cost of clothing, after a 1.7% increase in March.
The import price surge suggests that the U.S. trade deficit with other nations will continue to improve, as the weakened dollar makes imports costlier here and American goods cheaper abroad.
Higher Inflation Expected
“We’re definitely seeing higher prices for imported goods,” said Michael Penzer, an economist at Bank of America in San Francisco. “We have all been expecting higher inflation on imports with the falling dollar, and now it looks as though we are seeing it.”
“In a way,” said David Wyss of Data Resources Inc., a Lexington, Mass., forecasting firm, the report on consumer price increases “was good news because it was about 0.1 points less than the market expected and was definitely less than last week’s producer prices indicated.”
Wyss noted that prices for services have been rising since January at a steady 0.4% monthly rate, and that medical care, up 0.6% in April, continues its record of outstripping the general consumer inflation rate.
Gasoline prices were up 0.7% in April and have spurted 14.4% so far this year--but they are still 30% below the peak level attained in March, 1981, when the “energy crisis” was still in full bloom. Food prices, like energy a volatile measure month by month, rose 0.3% in April after a 0.1% decline in March.
Stable Oil Prices
Wyss said he expects crude oil prices to stabilize near the current $19-a-barrel level, resulting in gasoline prices of 90 cents to $1 a gallon.
Kathleen Cooper, chief economist at Security Pacific Bank in Los Angeles, for the most part agreed. “Over the next few months, we can expect to see (consumer prices) settle down a bit, without too many more energy price changes. But that means we are going to have to learn to live with inflation of 5% this year and maybe next. The falling dollar is an important factor here.”
