Inflation for March: Like a Lamb

Consumer prices edged up only slightly in March, in part because of the smallest increase in medical costs in almost a decade, the Labor Department announced Friday.

The figures prompted economists to suggest that recent inflationary fears have been exaggerated.

The seasonally adjusted 0.1% rise in the consumer price index last month comes after jumps of 0.5% in January and 0.3% in February. The core index, which excludes the volatile food and energy components, also rose only 0.1% in March, compared to 0.5% jumps in both January and February.

Many economists see the core index as a more reliable indicator of price changes.

“After two big core increases in January and February, a 0.1% core increase this time is much better,” said economist David Wyss of Data Resources in Boston. “We were worried that inflation was popping up early, but it doesn’t seem to be.”

Analysts attributed much of the almost imperceptible consumer price change to the smallest increase in medical care costs since 1984.

“The 0.3% increase in medical costs suggests either that medical firms are getting scared of what the Clinton Administration is going to do to health care, or that market forces work even in medical care,” Wyss said. “But I’m not going to get excited about it until we see it happen over a few months.”

While economists generally saw the slight increase as an indication that inflation will not be as high as feared earlier this year, they were quick to emphasize that--like January and February’s unexpectedly large increases--last month was an aberration in the other direction.

“Our view is that 3% inflation--like we had last year--is in store for us again this year,” said Sandra Shaber of the WEFA Group in Bala Cynwyd, Pa.

The easing of inflation fears should give the Federal Reserve Board flexibility as it sets interest rates and attempts to spur economic growth, analysts said.

“There is now no reason for the Fed not to ease credit if the economy slides back,” said David Hale, chief economist for Kemper Financial Services in Chicago. “But the outlook is not clear. There is enough strength in things like auto sales to guarantee that the economy is not going back to a recession. But there is not enough to guarantee that it will not go back to 2.5% growth.”

Economists also said that, if consumer prices had risen significantly again in March, it is possible that Clinton’s economic plans would have been derailed by fears of inflation.

“If the earlier price increases had continued, it would really have signaled an increase in inflation and sabotaged the Clinton plan to trade some fiscal restraint for lower interest rates,” Shaber said. But Hale said he expects the economy to continue along its sluggish path because industry does not know what the Clinton Administration will do with taxes. This was, at least in part, demonstrated by the uncertainty surrounding the health care industry last month and the resulting tiny increase in medical costs, he said.

The Labor Department also reported Friday that workers’ inflation-adjusted purchasing power was essentially unchanged last month. The slight increase in inflation and a small drop in the average number of hours worked were offset by a 0.5% increase in average hourly earnings.

Consumer Price Index

Percent change from prior month, seasonally adjusted.

March, ‘93: +0.1%

Feb., ‘92: +0.3%

March, ‘92: +0.4%