Consumer Prices Edge Up 0.2%; GNP Rises 4.8%

Inflation, kept in check by expected declines in food and energy costs, continued at a slow pace last month as retail prices rose only 0.2%, the Labor Department reported Wednesday.

Costs for medical care and many other services continued to climb, but the modest overall increase in the consumer price index is likely to help quell continuing fears about a resurgence of high inflation in the near future.

In a parallel piece of favorable economic news, the Commerce Department revised earlier figures and said the economy grew at an annual rate of 4.8% during the last three months of 1987, slightly faster than reported earlier and the best quarterly growth rate since early 1986.

The increase in the annual growth rate of the gross national product was higher than the 4.5% growth reported a month ago for the October-December quarter and the 4.2% that had been forecast in January.

In addition, the Commerce Department report said the upward revisions were in all the right places: more domestic consumption, more investment in housing and business, more exports and fewer imports and, most important, a smaller pileup of unsold retail goods.

In the Los Angeles-Anaheim-Long Beach metropolitan area, the consumer price index was up a relatively steep 0.7%, according to figures that were not seasonally adjusted. The price increase in the area during the last 12 months was 4.4%, compared to 3.9% nationwide.

Positive Reports

The Reagan Administration, quick to rebut any suggestion that the economic recovery could be running into trouble in an election year, stressed the high notes in Wednesday’s reports.

“One of the best-kept secrets in economic circles these days is that the Reagan Administration is going to end with a bang, not a whimper, as the economy makes a successful transition to an export-led economy,” President Reagan said in a speech Wednesday to the American Business Conference.

Economists seemed to agree with the upbeat assessment, though many had several caveats.

“Both reports were positive, and the CPI was especially well behaved in the basics: food, transportation, housing and energy,” said Allen Sinai, chief economist at Boston Co. Economic Forecasters in New York.

However, he warned that the increases in costs of medical care and other services point to higher inflation later in the year. Costs for medical services climbed 0.7%, and a catch-all services category that includes education and financial services showed a 0.6 % increase.

“How long can this last? Since we are getting closer to full employment now, the question is: What will begin to push inflation back up? Because it cannot be known if these good results are only transitory,” Sinai said. The nation’s unemployment rate in February was 5.6%.

On the GNP growth side, he declared “all the revisions positive.” Sinai noted that exports continued to improve, that non-farm inventories were not as large as once feared and that consumer buying was stronger than earlier reported.

Glut Less Likely

Nigel Gault of Data Resources Inc., a forecasting firm in Lexington, Mass., said: “Inflation is not now a problem, though it could be a problem later this year and in 1989 because one day wages will have to respond to lower unemployment and higher service prices.”

As for the GNP revisions, Gault agreed that prospects for an accumulation of unsold non-farm products now seem less worrisome than in the January and February reports and that sales to consumers no longer seemed quite so anemic.

He warned, however, that another report, which showed a sharp slowdown in corporate profits during the fourth quarter, was a sign that some of the lower inflation at the retail level may be a sign of economic weakness, not strength.

After-tax profits increased 1.6% during the quarter, down from a healthy 5.5% increase in the July-September quarter, while corporate profits from current production declined 1.5%, after a strong 6.1% increase.