Consumer Prices Up 0.5%; Worst Dose of Inflation Since May

Consumer prices shot up 0.5% last month as higher gasoline and food costs gave the country its biggest inflation spurt since May, the government said today.

The October increase in the Labor Department’s consumer price index, which translated into an annual inflation rate of 5.9%, followed four months in which the index recorded modest monthly gains of 0.2% or less.

The price spurt was slightly worse than analysts had been expecting. The government blamed a jump in gasoline costs, higher prices for new cars and a sharp turnaround in fruit and vegetable prices for the rise.

Through the first 10 months of this year, consumer prices have risen at an annual rate of 4.6%, up only slightly from the 4.4% price gains recorded in both 1987 and 1988.

Many economists are predicting that the best news on inflation has passed and that coming months will show higher inflationary pressures. Still, few analysts are concerned that the price increases will worsen beyond annual rates of around 5%.

Underlying inflationary pressures had been masked during the summer because of big declines in energy prices. With energy prices now rebounding somewhat, analysts predicted that inflationary pressures will be intensifying in coming months.

“Inflation pressures are persisting despite the slowdown in the economy,” said Bruce Steinberg, an economist with Merrill Lynch. “We had a long string of very moderate inflation reports but inflation was never as good as those numbers indicated.”

Wall Street took the latest inflation report in stride. The Dow Jones average of 30 industrials rose by almost six points in early trading.

In a second report today, the Labor Department said Americans’ average weekly earnings rose to $343.07 in October, 4% higher than a year ago, but not enough to keep up with inflation during this time period.

Leading the October advance in the consumer price index was a 0.9% seasonally adjusted jump in gasoline costs, the biggest increase since a 3.9% surge in May. Gasoline prices have been on a roller coaster this year, soaring by 21.2% in the first five months of the year and then falling by 9.3% from June through September.

The price that consumers actually paid at the pump was unchanged in October. However, gasoline prices normally fall in October, so the frozen prices translated into an increase after the Labor Department made its adjustments to take seasonal factors into account.

Food costs were up 0.4% in October, the biggest advance since a 0.6% rise in May.

Fruit and vegetable prices jumped 1.2%, reflecting higher costs for apples and bananas. Dairy products posted a huge gain for the second straight month, rising 1.8% for the biggest advance since May, 1980.

New car prices were also up in October, rising by 0.6% after having fallen for five consecutive months. The jump reflected higher costs for the 1990 models and a big 1.3% rise in auto financing costs. Used-car prices, however, continued to decline, edging down 0.1% after a 0.7% drop in September.