THE COST OF LIVING : Inflation Rate Up Modest 0.4% : * Economy: The November figures are slightly higher than expected, but economists say they still show prices are under control.
Consumer prices rose a moderate 0.4% in November, responding to higher energy costs and a food price surge caused mainly by the whitefly infestation in California, the Commerce Department reported Friday.
Although last month’s increase was slightly larger than expected, economists saw little prospect of resurgent inflation in the current recessionary environment. Consumer prices have risen at an annual rate of only 2.9% so far this year, compared to last year’s 6.1%.
“We have been looking for a downward trend in inflation, and the downward trend is still there,” said Bank of America economist Michael Penzer in San Francisco. “One positive aspect of a very slow economy is that inflation rates come down.”
“The trend in inflation this year is as we expected,” added Lynn Reaser, an analyst with First Interstate Bancorp in Los Angeles. “It’s essentially half the rate of last year.”
The “core” rate of inflation, which excludes volatile food and energy prices, was 0.3% in November. The core rate has averaged 4.5% over the past 12 months, higher than the overall consumer price increase because energy prices have fallen sharply following a steep run-up last year caused by the Persian Gulf crisis.
“The message of this report,” said economist Bruce Steinberg of Merrill Lynch in New York, “is that the silver lining to a recession as long as the current one is that it gets inflation down. Whether or not all the pain has been worth it, at least we’re getting something back.”
Food prices jumped 0.6% in November. The increase is almost entirely attributable to insect infestations affecting fresh vegetable crops, especially in California. Higher gasoline, natural gas and heating oil costs pushed energy prices up 0.8% for the month.
The energy price spike is likely to be short-lived. Wholesale prices for energy were unchanged in November, according to a separate government report issued earlier this week, suggesting that energy inflation should be flat at the retail level within a month or so.
Another factor in last month’s consumer price rise was a 1% gain in clothing prices, after seasonal adjustment. The Bureau of Labor Statistics noted, however, that actual retail apparel prices rose only 0.2% before the adjustment, which was attributed to a different rate of pre-Christmas discounting than occurred last year.
That discrepancy was not considered meaningful. “It may relate to the timing when the data was collected,” noted First Interstate’s Reaser. “The common view is that there is very heavy discounting at almost all retail outlets.”
Other components of the consumer price index showed the impact of the recession. Auto financing costs were down 1.4%, the third consecutive monthly decline and an obvious reflection of weak auto sales and declining interest rates. Similarly, the soft real estate market and falling mortgage interest rates were reflected in a modest 0.2% increase in housing costs. Entertainment costs fell 0.1%, another indication of weak spending.
Medical services, always in demand and always more expensive, rose 0.5%. But inflation in the entire service component of the consumer economy, representing just under 55% of all purchases, rose only 0.1% last month, a sharp reminder that this recession has hit service industries with unprecedented ferocity.
In the Los Angeles-Anaheim-Riverside metropolitan area, consumer prices rose 0.4% in November before seasonal adjustment, compared to 0.3% nationwide.
In another economic report Friday, the government said that business inventories were piling up faster than they could be sold for the second straight month. The Commerce Department said inventories jumped by 0.4% in October while sales were up only 0.3%. Rising inventories are a danger signal of possible production cutbacks.
In a third report Friday, the Labor Department said that Americans’ average weekly earnings, after adjusting for inflation, increased a tiny 0.2% in November, not enough to recoup a 0.7% October drop.
Consumer Prices Climb
The Labor Department attributed the gain to sharply higher energy costs and food prices, due in part to the whitefly infestation in California.
Nov., ‘91: +0.4%
Oct., ‘91: +0.1%
Nov., ‘90: +0.3%
