Oil Lowers Boom on Prices : Inflation at 9.5% Rate in September

Soaring energy prices after Iraq’s invasion of Kuwait pushed Americans’ cost of living up 0.8% in September, the second consecutive monthly dose of bad inflation, the government said today.

The September rise matched the August increase in the Labor Department’s Consumer Price Index. If prices continued increasing at the two-month pace for a year, it will produce an annual inflation rate of 9.5%.

In addition to boosting inflation, the Aug. 2 Iraqi invasion hurt the nation’s merchandise trade deficit, which jumped 2.4% in August. Rising oil prices pushed imports to a record high. The gap between imports and exports climbed to $9.3 billion, the largest since January.

In a separate report, the Labor Department said Americans’ average weekly earnings, after adjusting for inflation, increased 0.4% in September. Before adjusting for inflation, they totaled $353.92.

In the inflation report, energy prices in September jumped 5.6%, the worst rise on record since the department began tracking the sector in 1957.

Gasoline soared 9.5%, the worst increase in 17 months, and fuel oil rose 15.9%. For August and September together, gasoline rose 17.9% and fuel oil was up 33.7%.

Electricity and natural gas charges also rose, but less steeply.

For the first nine months of the year, consumer prices advanced at an annual rate of 6.6%, well above the 4.6% increase for all of 1989.

Analysts expect the bad news to continue through November or December, even if oil prices stabilize near $40 a barrel, double the July price. They anticipate a 1990 consumer price rise near 7%, the highest in nearly a decade. Prices increased 8.9% in 1981.

The oil shock will begin feeding through to chemicals, airline tickets and other energy-related products and services. The big bite out of consumers’ wallets is expected to slow an already sluggish economy.

“We’re going into a recession, very clearly,” said economist David Wyss of DRI-McGraw Hill.

Prices excluding energy rose a more moderate 0.4% in September, the same as the previous month. But the Labor Department noted several sectors of above-average inflation.

“While prices in most components of the index accelerated, the run-up for petroleum-based energy prices has had the largest effect,” it said in its release.

Medical care was up 0.7%, bringing prices 9.3% higher than a year earlier. Clothing costs were also up 0.7% in September.

On a positive note for consumers, food and beverage prices rose a moderate 0.3% last month, the same as August. New car prices edged up only 0.1% after remaining unchanged in August. Car dealers beset with lagging sales have been unable to wean the public from rebate programs and discounted financing.

The various changes put the index for all consumer items at 132.7 in September. That means a hypothetical selection of goods and services costing $100 in the 1982-84 base period cost $132.70 last month, up $7.70 from a year earlier.

As bad as the short-term inflation outlook seems, analysts expect inflation to return to normal next year, unless a shooting war breaks out in the Persian Gulf and sends oil prices up further.