Prices Rise 0.5% in October as Inflation Jumps : Economy: An increase in medical costs that affected the nation’s thriving service sector worries some experts. In Los Angeles, however, prices dropped 0.1%.

Consumer prices jumped 0.5% in October, the Labor Department reported Tuesday, providing a reminder that--after several months of remission--inflation again has surfaced. It is running at an annual rate of about 5%.

The October increase in the consumer price index reflected a rebound in food and gasoline prices after declines last summer, as well as seasonal increases in automobile and clothing prices.

But economists noted that price appreciation was evident throughout the economy. The underlying inflation rate, derived by excluding food and energy costs, also was 0.5% in October.

More ominously, perhaps, inflation in the service sector, which now represents nearly 55% of the economy, rose 0.5% as well. The gain in services was paced by a 0.7% increase in medical costs.

The bottom line, according to economists, is that consumer price inflation seems to have become entrenched at an annual rate of 4.5% to 5% and probably will not fall below that level even if the economy slumps. So far this year, consumer prices have risen at an annual rate of 4.6%, compared to the 4.4% price gains recorded in both 1987 and 1988.

In the Los Angeles metropolitan area, consumer prices for goods and services fell 0.1% before seasonal adjustment, compared to an unadjusted increase of 0.5% nationally. In September, metropolitan area prices jumped 0.9%, compared to 0.3% nationally.

Early this year, the nation’s inflation climbed to an annual pace of nearly 9% as food and energy prices jumped, and other commodity prices rose by lesser amounts. Those trends were reversed last summer, however, and inflation fell to an annual rate of 1.6% in the third quarter.

“In 1989, we’ve been talking about ups and downs in commodity prices,” noted Stacy Kottman, a member of a Georgia State University forecasting unit that concentrates on price movements. “But next year, as commodity prices settle down, we are going to be reading about service prices and employment cost inflation. Services are already running at 4.8% over the past year, higher than the 4.5% overall.”

October’s price gains also reflected seasonal increases in auto prices; these rose 0.6% in October as new models appeared.

Kottman, however, said he expects energy and auto prices to moderate in coming months. “If you walk into showrooms, you see a lot of bored car salesmen; so new car prices will likely be given back in incentives next month,” he said.

Clothing prices jumped 1% after a 1.7% gain in September. Roger Brinner, an economist with Data Resources in Lexington, Mass., said higher clothing prices are setting up “another game of chicken” between consumers and retailers, a pattern likely to affect other goods between now and Christmas.

“As in recent years, we’ll probably see soft sales from retailers until the discounts go on at the end of the Christmas buying season,” Brinner said. “Nowadays, you can get high price or high volume for most retail goods--but you can’t get both.”

Irwin L. Kellner, chief economist at Manufacturers Hanover in New York, said retail markups reflect “businesses trying to gather rosebuds in the form of higher prices while they may,” a trend that could be reversed in coming months.

“Manufacturers see profits falling and costs rising, so they’re trying to get prices up before the economy slows so much they can’t do it at all,” Kellner said. “But it’s likely most car price increases will get reversed, and nervous retailers before Christmas will likely flatten apparel prices also.”

But even if retail goods begin to soften, the service economy is still experiencing significant inflation, Kellner said. Service gains reflect higher employment expenses, primarily health benefits, he noted.

Indeed, the increases in health-care costs have become something of a flywheel for service sector inflation in general. The 0.7% increase in medical-care costs in October followed an increase of 0.8% in September and four consecutive monthly gains of 0.7%. Medical costs are up 8.1% from a year ago, and they have increased at an annual rate of 8.8% over the past three months.

Before seasonal adjustments, the consumer price index rose by 0.6 points to 125.6 in October from a 1982-84 base of 100. In other words, a selected cross-section of consumer goods and services that cost $100 during the base period now costs $125.60.