Energy Costs Push Consumer Prices Up 0.8%
Soaring energy prices following Iraq’s invasion of Kuwait pushed consumer prices 0.8% higher in September and boosted the nation’s foreign trade deficit to its highest level in seven months, the government reported Thursday.
While the one-two punch had been widely expected by economists, the combination of figures underscored the continuing problems facing an economy already teetering on the brink of recession.
September’s increase in the consumer price index marked the second month in a row that inflation has increased 0.8%, which represents an annual rate of 9.5%. Inflation hit an annual rate of 6.6% during the first nine months of the year, compared to 4.6% for all of 1989.
Meanwhile, the U.S. trade deficit climbed to $9.34 billion in August, a 2.4% increase from July’s $9.12 billion. The cost of imports, inflated by higher crude oil prices, reached a record $42 billion.
“We knew most of this was coming, and most of it was oil,” said economist David Wyss of DRI/McGraw Hill, a Lexington, Mass., forecasting firm. “We knew all about energy in the consumer prices, because we all filled our gas tanks last month. And the OPEC (oil) bill more than offset the improvement in the rest of U.S. trade.”
The stock market, which already had come to terms with the inflationary impact of the Persian Gulf crisis, shrugged off Thursday’s reports and had a sharp gain.
The reports made clear, however, that oil price inflation will continue to distort consumer prices for the rest of the year and that a soaring oil import bill is likely to push the monthly trade deficits above $10 billion in future reports.
September’s increase in consumer prices was primarily attributable to higher energy costs, with gasoline gaining 9.5% for the month and fuel oil soaring 13.2%. Since Iraq’s Aug. 2 invasion of Kuwait, world oil prices have more than doubled.
Despite the sharply higher energy costs recorded by the Labor Department’s consumer price index, there was virtually no sign of the ricochet effect of higher oil prices in other parts of the economy. Economists said that those impacts are likely to be felt in coming months.
The separate trade report issued by the Commerce Department showed that the nation’s trade deficit with members of the Organization of Petroleum Exporting Countries jumped by $600 million in August.
The increase was attributable entirely to higher prices, with the nation actually importing 28 million fewer barrels of oil in August than in July. August imports were purchased at an average price of $19.54 per barrel, barely half the level of recent spot prices but a higher average than in previous months.
“If we could have held down the cost of energy, this report would not have been bad,” said Donald Ratajczak, an inflation specialist at Georgia State University in Atlanta. “But that price increase is so huge, people can’t avoid it. The 9.5% jump in gasoline would be a hefty increase in a year, and people are using all their spare cash at filling stations.”
That trend, in turn, could accelerate the present economic downturn, as higher pump prices leave consumers with less money to spend on other goods. At the same time, however, it could help control inflation later on.
“So far the weakness in the economy has not permited the higher price of oil to spread to other sectors,” said Irwin L. Kellner, chief economist at Manufacturers Hanover in New York. “I think we can expect the rate of inflation to settle down fairly quickly, just as it did earlier this year after the price of energy shot up in January because of the cold winter.”
Indeed, there were some signs of encouragement in the report. Excluding energy and food prices, the core rate of retail price inflation was a manageable 0.3%, down from 0.5% in August.
The energy picture aside, other factors in the consumer price picture last month were normal for the season.
Apparel prices jumped 0.7% for the month, pushed largely by a 1.5% surge in the cost of women’s clothing as new fall lines hit retail stores. Those increases are invariably balanced by large discounts a few months later.
The cost of shelter, excluding a 1.2% increase for fuel and utilities, rose a moderate 0.3% after much larger increases in July and August caused by summer increases in hotel room rates and the once-a-year impact of higher property tax rates and assessments.
Medical costs rose 0.7%, about the monthly average for the year. But the cost of all services, up 0.7% in August, rose a more manageable 0.4%, and the retail price of durable goods--which explicitly excludes all fuels--was unchanged.
In the Los Angeles-Long Beach-Anaheim metropolitan area, consumer prices rose 0.5% before seasonal adjustment, compared to 0.9% nationwide. In August retail prices in the metropolitan region rose a full 1%.
Before seasonal adjustment, the consumer price index rose 1.2 points to 131.1, from a base of 100 set in 1982-1984. That means that the cost of a hypothetical cross-section of consumer goods and services that cost $100 in the base period would have cost $131.10 in September.
In the August trade report, exports increased $500 million to $32.6 billion, while imports rose $700 million to $42 billion. Oil imports were up $800 million, a gain that was only marginally offset by smaller imports of capital and consumer goods.
The perennial trade deficit with Japan widened to $3.8 billion from $3 billion in July, but for the year it was running at only $26.3 billion through August, compared to $32.4 billion at the same point in 1989.
The trade deficit with the European Community was $236 million in August, down from $997 million the previous month. The United States is running a surplus with the European Community this year totaling $4.1 billion through August, compared to a deficit of $1.5 billion in 1989.
“The trade deficits will certainly worsen in coming months as the impact of higher oil prices hits,” said economist Allen Sinai of the Boston Co. “But it’s encouraging to see exports stronger. Trade overall should keep showing an improvement, exclusive of oil, and exports remains a bright spot in our economy.”
STOCKS ADVANCE: The Dow Jones industrial average closed up a robust 64.85 points. D1
