Inflation Fears Persist Despite Small Price Rise
Consumer prices rose somewhat less rapidly last month than they did in October, the government reported Tuesday, but economists warned that wage-price pressures were still mounting and predicted that inflation would continue to rise toward a 5% annual rate.
The Labor Department’s monthly index showed consumer prices up a relatively modest 0.3% in November, after more worrisome rises of 0.4% in each of the three previous months. Food prices remained unchanged in November, and housing and energy costs rose moderately.
Growth Figure Revised
Meanwhile, the Commerce Department published revised figures showing that the economy grew at a 2.5% annual rate during the third quarter, down from a 3% pace during the April-June period. Earlier estimates had put the third-quarter rise at a 2.6% annual pace.
On the surface, the combination of figures spelled good news for the economy. Analysts have been concerned for months that inflationary pressures were rising with the economy’s rapid growth, heightening prospects that the Federal Reserve Board would raise interest rates.
However, analysts warned that more recent statistics are showing that the economy is picking up steam again. Commodity prices have begun rising sharply, they noted, suggesting a likely resurgence of inflation early in 1989.
Lawrence A. Kudlow, chief economist for Bear, Stearns & Co., a New York investment house, predicted that the Federal Reserve, which has already begun pushing interest rates up to try to dampen inflation, would not be satisfied by the latest round of figures.
“We are fearful that the Fed’s tightening is not completed,” Kudlow said. “It’s hard to make a case that inflation has peaked. We’re still concerned about interest rates--that they’ll be going up further.” Higher rates, he said, could dampen economic growth.
David A. Levine, economist for Sanford C. Bernstein & Co., a New York consulting firm, agreed. “If you look at the data over the past few months, the economy still is too strong,” Levine said. “The economy already is heading for a new wage-price spiral. Today’s figures don’t change a thing.”
Housing Costs Up
Tuesday’s report showed that the bulk of the November rise in prices was attributable to housing and transportation, each of which jumped 0.3%. The cost of apparel and upkeep, which had soared 2% a month during the September-October new fashions season, declined 0.3%.
As has been the case for most of the last two years, medical costs continued to rise sharply, jumping 0.4% in November, bringing the increase for the last 11 months to an annual rate of 7%. Entertainment costs rose 0.3% in November after climbing 0.4% in October.
Consumer prices in the Los Angeles-Long Beach-Anaheim area, which are calculated on a different basis from the national index, rose 0.6% in November after a 0.5% increase the previous month.
The 0.3% increase in the national index brought the pace of inflation at the retail level to 4.4% for the first 11 months of the year, the same as for all of 1987. Most economists now believe that the underlying inflation rate is around 4.5%.
Index Stands at 120
With the November increase included, the consumer price index stood at 120.3% of its 1982-1984 average, before adjustment to offset seasonal patterns. That means it took $120.30 last month to buy the same goods and services that had cost $100 between 1982 and 1984.
Separately, the Commerce Department reported that the profits of American corporations rose by $6.4 billion, or 3.9%, last quarter after taxes were deducted--markedly less than the $13.3-billion, or 8.9%, rise the previous quarter but still a relatively buoyant rise.
Profits before taxes edged up $8 billion, or 2.6%, during the period, after a $19.7-billion, or 6.9%, rise in the April-June quarter. Profits from current production, a better measure of corporate health, rose $3.5 billion, or 1.1%--one-third the previous rise.
The bulk of the changes in the estimates of the economy’s overall 2.5% growth rate for the July-to-September quarter stemmed from smaller-than-expected totals for government spending and higher-than-predicted inventory investment. Consumer spending also continued to surge.
The Commerce Department report showed also that the economy’s broadest measure of inflation--the gross national product price index--was higher than had been estimated previously for the third quarter.
The index rose at a 5.3% annual rate during the period, rather than the 5.1% pace that had been calculated only three weeks ago. By comparison, the rise during the second quarter of the year had been at a 5% annual rate.
