Consumer Prices Up 0.5% to Highest Level in 14 Months : Increased Costs Across the Board Spark Concerns That Inflation May Be on the Rise
Consumer prices surged 0.5% in March to an annual rate of 6.4%, the Labor Department reported Wednesday, heightening fears that inflation will begin spiraling upward again.
The jump in retail inflation, the highest in 14 months, coincided with the 0.6% increase in March wholesale prices that the Labor Department reported last week.
The new measurement reflects higher prices across the board--in services, consumer goods, housing and transportation as well as in the volatile categories of food and energy. The underlying annual rate of consumer inflation in March--with food and energy removed--was more than 7%.
Economists warned that the March inflation reports signaled the possible return of a classic “demand” inflation. Economic expansion is generating money more quickly than goods, they say, and prices are rising inexorably.
“This has been brewing for some time,” said Cynthia Latta of the economics research firm of Data Resources in Lexington, Mass. “You really can’t ascribe it to a one-time factor, or to things like food and energy that bounce around.
Apparel, Prices Jump
“We are beginning to get production bottlenecks. Productivity gains are declining. Wages are going up, and labor shortages are forcing employers to take on less experienced workers.”
Allen Sinai, chief economist for Boston Co., termed the report “disturbing” and noted that all the ingredients are in place for a demand inflation that eventually would force the Federal Reserve to raise interest rates--and run the risk of a recession.
“This 6.4% annual rate isn’t related to special factors,” he said. “It’s pervasive and widespread. . . . Wages and producer prices are up. Commodities are up sharply. It’s disturbing to see these signs so early this year, at such a high rate. (Federal Reserve Board Chairman Alan) Greenspan has said more than 4% inflation is unacceptable. What will he do about this?”
Except for a big 2% jump in apparel prices reflecting higher-priced spring fashions, the March increases were unusually consistent. Food prices rose 0.4%, the cost of housing was up 0.3% and medical care was up 0.4%. Despite a decline in new car financing, relatively stable energy prices and cheaper used cars, the transportation component rose 0.1%.
White House spokesman Marlin Fitzwater, hit by the second unpleasant inflation report in a few days, expressed an uncharacteristic hope for slower economic growth.
Two Factors Cited
“Despite large price increases for consumer and producer prices in March, the smaller increases in prices in previous months and the expected slower growth in total demand in future months indicate that inflation remains under control,” Fitzwater said.
But there seemed to be a consensus among economists that there would be more bad news on prices.
Frank McCormick, a vice president and senior economist at Bank of America in San Francisco, observed that inflation had crept along at only a 2.8% annual rate during the three months before March.
“So the 6.4% rate in March in itself is not all that disturbing,” he said, although he conceded that higher inflation is likely for months to come.
“We’ve had two forces at work,” McCormick explained. “One is the weak dollar, pushing up the cost of imports and of goods that compete with imports.
“The other has been falling oil prices, working in the opposite direction. For the past six months, oil outweighed the dollar but that has now come to an end, and oil will be adding to inflation during the next few months.”
Wary of April Figures
In fact, prices for all energy products, seasonally adjusted, worked out to have been unchanged during March, Bureau of Labor Statistics specialist Patrick Jackman said. The recently reported increases in oil spot prices of as much as $3 a barrel in some markets will not show up until the April inflation reports a month from now.
“If we didn’t have higher energy prices coming in April, you could shrug this off,” said Donald Ratajczak, director of the economic forecasting project at Georgia State University and a specialist in price fluctuations.
“But we’re going to be getting a big jump in energy for April, so the chances are we’ll get back-to-back months of 0.5% on the CPI,” he added. “You can’t laugh that off. Inflation is becoming a big deal again.”
During March, the consumer price index increased by 0.5 point to 116.5, meaning that a basket of retail goods that cost $100 during the 1982-84 base period would have cost $116.50 last month.
Before seasonal adjustment, consumer prices jumped 0.8% in March in the Los Angeles-Long Beach-Anaheim metropolitan area.
