Prices Up 0.4%, Soothing Fears About Inflation

Consumer prices rose a moderate 0.4% in February, the Labor Department reported Tuesday, helping to soothe widespread inflation fears in financial markets.

But some economists said that the figure, although well below the back-to-back 1% wholesale price increases in January and February, nonetheless indicates that inflation is likely to continue creeping steadily upward in the months ahead.

“Inflation is getting worse slowly rather than rapidly, but it is still getting worse,” said Donald Ratajczak, head of the economic forecasting group at Georgia State University and one of the nation’s leading inflation analysts.

No Reason for Complacency

“There was a panicked overreaction to the wholesale price figures,” he added, “but, just because (the February consumer price increase) is a more typical number, (it) doesn’t mean there is any reason to be complacent about inflation.”

Last month’s 0.4% rise in the consumer price index, led by a sharp jump in gasoline prices, followed a 0.6% January increase, the largest monthly rise in more than two years. Despite the more modest price increase in February, the two months of price hikes together represent an annual rate of inflation of 6.1%.

If such rates continued throughout the year, inflation would be well above the 4.4% rate recorded in both 1988 and 1987. Inflation has not exceeded 5% since 1981, when prices rose by 8.9%.

“Inflation has ratcheted up a notch,” Glenn Forman, an economist for the WEFA Group forecasting company in Bala-Cynwyd, Pa., said, “but it hasn’t moved into the inflationary spiral that a number of people were concerned about.”

In Southern California, inflation at the consumer level advanced by 0.7% in February, powered by sharp price increases for clothing, transportation and food. But the overall price level remained unchanged in the San Francisco Bay area, according to the government survey.

Financial markets, battered by fears that inflation is escalating out of control, took the latest report in stride. The Dow Jones industrial average edged up 3.75 points as an early rally ran out of steam. The bond market improved slightly after falling sharply in the two previous sessions, and gold prices were down.

‘Sigh of Relief’

“The market issued a sigh of relief,” said Hugh Johnson, a senior vice president at First Albany Corp. in Albany, N. Y.

At the White House, President Bush said he hopes Federal Reserve Chairman Alan Greenspan will not overreact to recent inflation data.

“Look, he’s calling the shots his way, and I have said we will be vigilant against inflation, but we want this recovery to keep going,” Bush said.

“I don’t want it killed off by too restrictive a policy. And so I’ve told you I have no real complaints with Mr. Greenspan, and, try as you might, I’m not going to get into a fight with Alan Greenspan.”

Officials Cheered by Data

Other White House officials, who had feared that a report of sharply rising consumer prices would touch off another round of panic selling on Wall Street and put new pressure on the Federal Reserve to boost interest rates, were cheered by the latest figures.

“We’re likely to see a little bit of an increase in inflation from 1988 levels,” Michael J. Boskin, Bush’s chief economic adviser, acknowledged, “but I see the inflation rate abating toward the end of this year.”

Boskin said that the public should be prepared for occasional jumps in the price level but that the overall trend should be more favorable than in recent months. “I don’t expect inflation numbers to be uniform in one direction or another,” he said. “We may well see them bump up once or twice down the road as well as decrease.”

Gasoline Up Sharply

The biggest February increase was in the price of gasoline, which shot up by 1.7%. Economists said that further gasoline price hikes are already in the pipeline.

“The (consumer price index) in February only reflects $15-per-barrel crude oil, but the cost is currently around $19,” Ratajczak said. “So gasoline price hikes are going to get worse before they get better.”

Hotel and motel room rates rose 2.7% after a 0.4% decline the previous month. And medical costs continued to rise at a faster pace than those in any other major sector of the economy, jumping by the same 0.8% as in January.

Meat Prices Rise

However, food price increases were slightly more moderate than in January. Beef and pork prices were up again, reflecting the impact of sharp cutbacks in herds during last summer’s drought. Prices for poultry, fish and eggs fell, helping to hold the overall food price rise to 0.5%, down from the 0.7% increase in the previous month.

Overall, the various price changes left the consumer price index at 121.6, meaning that a market basket of goods and services that had cost $100 in 1982 were priced at $121.60 in February.