Consumer Prices Show No Increase in September : Economy: A batch of government reports point to continued low inflation and modest gains in factory output.

The economy is chugging along at a modest pace with inflationary pressures safely in check, the government said Friday in a batch of reports that buoyed analysts’ hopes for steady growth in the months ahead.

The Labor Department reported that its consumer price index did not move up at all last month as the price of cigarettes and other tobacco products fell by a record amount and gasoline pump prices declined for a seventh straight month.

So far this year, consumer prices are rising at an annual rate of just 2.5%, marking the third straight year of low inflation, a performance that has not occurred since the early 1960s.

The closely watched core rate, which excludes food and energy, rose only a slight 0.1% in September. Lower prices for gasoline, tobacco and clothing were major contributors to the favorable price report.

In the greater Los Angeles area, consumer prices rose 0.2% in September, the government reported.

Sam Hirabayashi, the department’s regional statistics chief in San Francisco, attributed the increase largely to higher apparel and upkeep costs. That’s a volatile category which can be influenced by such factors as back-to-school purchases, and the local figures aren’t adjusted for such seasonal variations.

The unexpectedly good news on consumer prices kept alive a bond market rally that had begun Thursday with good news on wholesale inflation.

The yield on the government’s 30-year bond, which moves in the opposite direction from its price, dropped to 5.79%, the lowest rate since the Treasury began regular bond auctions in 1977. It was the second straight record, after Thursday’s close of 5.85%.

Laura Tyson, head of the President’s Council of Economic Advisers, hailed Friday’s low inflation report as the most recent in a number of favorable developments. She said she was comfortable with the Administration’s midyear forecast that the economy would grow at a 3% rate through the rest of this year and next. That would be more than double the anemic 1.4% rate turned in during the first half of the year.

“If you take all these things together, our reading of the economy suggests a path of low inflation, low interest rates and a steady recovery,” she told reporters.

The Federal Reserve said that output at the nation’s factories, utilities and mines in September grew by a moderate 0.2%, twice the August pace.

Manufacturing, which has been one of the weak points in the recovery, was particularly robust advancing by 0.4%, largely due to a 4.2% jump in auto production.

And in another encouraging report, the Commerce Department said that the nation’s trade deficit narrowed in August, falling by 6.8% from the prior month to $9.7 billion.

A jump in exports led the gain, rising by 3.0%, their first advance in two months. Since the U.S. economy is increasingly dependent on overseas markets, the export gain bolsters overall growth prospects, analysts said.

In yet another report, a widely watched index of consumer sentiment, put out by the University of Michigan, showed a healthy increase to 83.1% in October, up from 77.9% in September, according to preliminary figures. Analysts said that rising consumer sentiment should translate into further gains in spending as the critical Christmas selling season approaches.

The only drag on the economic outlook from Friday’s reports was a 0.1% increase in business inventories in August, Dederick said.

Stockpiling of goods will slow down production in the third quarter, he said. But business sales by manufacturers, wholesalers and retailers rose a strong 1.1% in August, their healthiest gain since last December.

Consumer Price Index

Percent change from prior month, seasonally adjusted: Sept., ‘93: 0% Source: Labor Department