Food, Fuel Costs Push August Prices Up 0.4% : Economists See No Sign of Spurt in Inflation, Predict That Rate for All of 1988 Will Be 4.5%
Inflation continued to creep ahead in August as consumer prices advanced 0.4%, the same as in July, the Labor Department reported Wednesday, but economists said they saw no sign of a rapid inflation buildup that could lead to a serious economic slump.
“This ought to keep people calm,” Donald Straszheim, chief economist of Merrill Lynch in New York, said. “I see no reason to be disturbed by this number.”
Most of the August rise was caused by two factors--the Farm Belt drought, which pushed up the cost of food, and increased gasoline prices, which have already started coming back down this month.
With the volatile food and fuel components removed, the consumer price index in August advanced only 0.2%, a slower pace than in recent months.
“On the surface it looks pretty good,” Straszheim said, “and beneath the surface it looks pretty good, too.”
So far this year, inflation has been running at an annual rate of 4.6%, compared with a consumer inflation rate of 4.4% for all of 1987. Most economists see lower food and energy prices for the rest of the year and predict that the price index will advance about 4.5% for the year as a whole.
Before seasonal adjustments, the consumer price index in August rose by half a point, to 119, from a base of 100 calculated from price levels in December, 1982. Expressed another way, a sampling of consumer goods that cost $100 at the end of 1982 cost $119 last month.
In the Los Angeles-Long Beach-Anaheim area, consumer prices rose 0.4% in August before seasonal adjustment, and now are 4.5% higher than in August, 1987. During the 12-month period, prices rose 4% nationwide.
In another economic report released Wednesday, the Commerce Department said that personal incomes continued to rise in August, but at a slackened pace. Disposable (after-tax) personal income increased $5.6 billion, or 0.2%, compared with a jump of $21.8 billion, or 0.6%, in July.
The Commerce Department reported also that the number of housing starts, which often bounces erratically from month to month, plunged 3.3% in August after a 1.4% increase in July.
Analysts have been expecting housing activity to taper off because the Federal Reserve Board has been pushing up interest rates to curb inflation.
However, David Seiders, chief economist for the National Assn. of Home Builders, said that more and more home buyers appear to be turning to adjustable-rate mortgages, which cost less initially than fixed-rate mortgages but carry rates that fluctuate. This trend is keeping the demand for single-family houses steady, he said.
The Commerce Department said the overall decline of housing construction in August was due to a 16.9% plunge in the volatile category of apartments. There was a 2.1% gain in the number of single-family houses started during the month.
Although economists were generally satisfied with Wednesday’s inflation figures, they warned that the most serious effects of the drought will not be felt until early next year. Then, meat prices, which fell this summer as farmers slaughtered livestock they could not feed, are expected to rocket upward.
On the other hand, the disarray among Middle East oil producers in the wake of the cease-fire in the Iran-Iraq war is expected to keep fuel supplies up and prices stable or falling.
“Energy prices should go down in September and October, and we expect food prices to moderate the rest of the year, then rise much more sharply later on,” said David Wyss of Data Resources Inc., a Lexington, Mass., forecasting firm.
Drought’s Delayed Impact
“Inflation isn’t as scary as some people have been thinking,” he said, “but it will accelerate when the second phase of the drought impact kicks in early next year and meat prices bounce up with a vengeance.”
Donald Ratajczak of Georgia State University, a specialist in price movements, agreed that temporary food and fuel price rises distorted the August figures somewhat.
He noted also that clothing prices have been unusually volatile, having fallen at an annual rate of 9.9% in the last three months. The dollar’s midyear rally was partly responsible because it has pushed down the cost of imported clothing. During August alone, the price of all clothing fell 1.6% and women’s apparel prices plunged 3.6%.
For different reasons, Ratajczak said, the prices of gasoline, natural gas, some fruits and vegetables and processed foods have been bouncing around from month to month at “double-digit annual rates.”
Retailers, he said, “are finding it hard to set prices at the present time. They are guessing where prices ought to be, finding out they were wrong and then frantically adjusting to get them right.”
Housing Starts fell 3.3% in August to a seasonally adjusted annual rate of 1.44 million units. 1987 1988
