Factory Output High, but Inflation Slight

The nation’s factories are pushing closer to capacity although signs of inflation remain sparse. Analysts say the Federal Reserve is bound to raise interest rates yet again to check economic growth.

A turnaround in food and energy costs sent consumer prices up 0.3% in November, the Labor Department said Wednesday. The gain was the largest since August, but analysts said there are no signs of an impending price spiral.

In fact, the nation is ending its third straight year of price increases under 3%--the first time that has happened in three decades.

Meanwhile, the Federal Reserve reported that U.S. factories operated in November at their highest capacity in 5 1/2 years as industrial production climbed 0.5% for the 17th advance in 18 months. Auto production increased nearly 3%.

“These reports tell the Federal Reserve they don’t need to panic, although we are past most economists’ definition of full employment,” said Roger Brinner, of DRI-McGraw Hill, an economic forecasting firm in Lexington, Mass. “The economy needs to be slowed down. But we’re not at any crisis point on inflation.”

Analysts predicted no change in the timetable for the next round of interest rate increases. They said they expect the Fed to take no action when its policy makers meet Tuesday, waiting instead until Feb. 1 after the first such meeting of 1995.

In another report, the Commerce Department said the deficit in the U.S. current account bulged 10% to $41.7 billion in the third quarter, the largest trade gap in nearly seven years.

The current account is the broadest measure of foreign trade, covering merchandise, services and investment flows. The huge imbalance mirrored the trend in monthly reports showing deteriorating U.S. trade as the economy boosted imports while U.S. businesses lost export sales because of weakness in overseas markets.

The reports generally were in line with Wall Street expectations and financial markets rallied. The Dow Jones industrial average posted a gain of 31 points. Bond yields fell, but later rose, with the yield on the 30-year bond at 7.86%.

The Consumer Price Index, up just 0.1% in October and 0.2% in September, was rising at an annual rate of 2.7% through November and almost certainly will be under 3% for the year.

Analysts predicted the good news will not deter the Fed from pushing interest rates higher to tighten credit because the central bank is convinced economic growth is too strong to keep inflation at bay much longer.

The Federal Reserve wants growth held down to around 2.5%.

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Consumer Price Index

Percent change from prior month, seasonally adjusted:

November 1994: 0.3%

Source: Labor Department

Trade Deficit

Quarterly balance of U.S. current account, the broadest measure of U.S. foreign trade, in billions of dollars:

Last Quarter of ‘94: -41.7

Source: Commerce Department