Oil Shock Fuels Inflation : Gulf Crisis Hits U.S. Pocketbooks

Skyrocketing oil costs pushed retail prices up a sharp 0.8% last month as the Persian Gulf crisis began hitting Americans’ wallets, the government reported today.

In a separate report, the Commerce Department said the U.S. merchandise trade deficit jumped a dramatic 75% to $9.33 billion in July, the month before the invasion. Analysts expect the deficit to climb further as the oil shock drives up import costs.

“We’re looking at the worst of all possible worlds for the economy: worsening inflation and slower growth,” said economist David Jones of Aubrey J. Lanston & Co., a government securities dealer in New York.

Financial markets turned down in response to the double dose of bad news. (Story, P3.)

For the first eight months of 1990, prices rose at a seasonally adjusted annual rate of 6.2%, up sharply from the 4.6% rise for all of 1989.

“Inflation is now at the worst pace in eight years,” said economist Bruce Steinberg of Merrill Lynch. “It is the worst since 1982, when the economy was coming out of double-digit inflation.”

The department attributed nearly half of the August increase to energy costs, up 4.3%. Gasoline prices rose 7.6%, while fuel oil prices jumped 15.4% after six consecutive declines.

The gain in the Labor Department’s consumer price index was double the 0.4% rise in July and the largest since January, when a severe cold snap pushed costs up 1.1%.

More bad news is coming over the next several months, economists believe. Crude oil prices have continued to rise this month and will work their way through to the gasoline pump.

Many analysts believe, however, that economic growth is too slow and demand too weak to support a sustained inflation burst once oil prices stabilize.

“I think we’ll have two, maybe three, more months of high inflation numbers,” said economist Mark Zandi of Regional Financial Associates in West Chester, Pa.

The Commerce Department said the huge increase in the trade deficit followed a revised $5.34-billion imbalance in June, which was the smallest since June, 1983, when it had fallen to $3.96 billion. The June deficit originally was reported to be $5.07 billion.