Biggest Price Rise in 7 Yrs. : Food, Fuel Hikes Cited in 1.1% Jump

Retail prices soared 1.1% last month--their steepest jump in 7 1/2 years--as consumers suffered from the left-over effects of December’s high food and fuel costs, the government said today.

At the White House, presidential Press Secretary Marlin Fitzwater called the jump “disappointing news” but said the Administration expects the core rate to decline steadily over the year.

Analysts said that January’s price surge overstates the true pace of inflation and that price increases should moderate in the following months. There was concern, however, about higher prices posted for items outside the food and fuel categories.

The Labor Department said the increase in its seasonally adjusted consumer price index was the largest since a 1.1% gain in June, 1982. The department said 60% of the January increase came in food and energy prices.

The frigid weather a month earlier--it was the fourth-coldest December since records were first kept 96 years ago--drove down fuel supplies and damaged fresh fruits and vegetables, driving prices up.

Analysts said food and energy prices should ease by March.

“In fact, we’re already beginning to see food and energy prices come down,” said Lawrence Chimerine, senior economic adviser for the WEFA Group in Bala Cynwyd, Pa. “Certainly, starting with the March CPI number, we’ll see much smaller increases.”

Nevertheless, there was concern that the so-called core inflation--prices excluding the volatile food and energy sectors--rose 0.6% last month, twice December’s increase and the largest since an identical 0.6% jump in January, 1989.

“We are hopeful that this is a bulge that will be temporary in nature, but inflation requires eternal vigilance, and we remain on a policy of wanting steady growth with low inflation,” White House spokesman Fitzwater said.

John Silvia, an economist with Kemper Financial Services in Chicago, noted that in addition to food and energy, all other categories posted increases except apparel, which was unchanged.

“The surprising breadth of the increases . . . suggests that core inflation is 4.5% to 5%,” he said. “If we’re stuck there, that means the Fed is stuck.”

Federal Reserve Chairman Alan Greenspan told Congress on Tuesday that a reversal of the “horrendous’ January consumer price rise is under way but added that inflationary pressures remain too high and indicated that the Fed will continue its tight-credit and high-interest policies.

Overall, food prices advanced 1.8% while energy costs were up 1.9%.

Dairy prices continued their upward spiral, rising 2.4% after increases of 2.2% in December, 1.7% in November and 1.4% in October. Analysts attributed the hikes to last year’s drought, which caused many farmers to slaughter milk cows.

Other categories showing price increases included new-car prices, 0.7%; entertainment costs, 0.6%; housing expenses, 0.7%, half of which was attributed to a 2% increase for fuel and other utilities; medical care, 0.6%, and transportation costs, 2.1%.