Consumer Prices Up 0.6%--, Biggest Jump in Two Years : Dow Off 42 on Fears of Inflation

Consumer prices shot up 0.6% last month, their fastest rise in two years, the government said today in a report that the Federal Reserve chairman called disturbing.

Financial markets fell sharply in a reaction to the report and the Fed’s comments about it. The Dow Jones industrial average of 30 stocks closed down 42.50 points. (Details on Page 3.)

Propelled by higher costs for food, energy and a variety of other goods and services, the seasonally adjusted increase in the consumer price index doubled the moderate 0.3% gains of November and December, the Labor Department said.

January’s rise, if it persisted for 12 months, would amount to an annual inflation rate of 7.2%, a dramatic increase from the 4.4% posted for both 1988 and 1987.

Inflation ‘Accelerating’

“Inflation is accelerating, pure and simple,” said economist Allen Sinai of the Boston Co. “It shows some signs of lurching out of control. Any way you cut that report, inflation was everywhere.”

Fed Chairman Alan Greenspan, testifying before a House Banking subcommittee today, called January’s gain “disturbing” and said the rising prices were probably the result of accelerating wage increases.

Greenspan reaffirmed his view that the risks in the economy appear to be on the side of inflation, which could build if any attempt is made to lower interest rates.

“The market is getting a little bit jittery,” said economist Dan Seto of Nikko Securities Co. International Inc. in New York. “The market will look for the Fed to put more pressure on interest rates.”

Last month’s 0.6% increase in consumer prices was the biggest jump since a 0.7% rise in January, 1987.

Higher prices for fuels, poultry, fish and eggs, coupled with a sharp advance in tobacco prices, accounted for much of the price acceleration.

Food Costs Up 0.7%

Food costs were up 0.7% and energy costs rose 0.8%. Even excluding those two volatile categories, consumer prices were up 0.5%.

Increased food prices were attributed in part to aftereffects of last summer’s drought, but also to generally higher costs of doing business, including rising distribution and packaging expenses.

Rising energy prices were pinned to higher costs for crude oil. Gasoline costs were up 0.9% during the month after dropping 1.6% in December. .

One of the biggest increases last month came in costs for tobacco and other smoking products, which jumped 4.7% after major cigarette makers raised wholesale prices in December.

The only two bright spots in January’s report were clothing and housing costs. Apparel prices were down 0.1% as retailers continued to mark down winter merchandise. Housing costs rose a modest 0.2%.

Sinai called the report sobering because “it is always unacceptably high inflation that gets the economy in trouble since it (inflation) drives the Federal Reserve to raise interest rates more than anyone would like or expects.”

“Those higher interest rates damage the economy as part of the price of getting inflation down,” he said.