THE ECONOMY : Prices Up 0.4% in January, a 2-Year High

Inflation posted its biggest surge in more than two years in January as consumer demand for heating fuel boosted energy prices, the government said Wednesday.

The blizzard and cold also contributed to the largest drop in sales of existing homes in nine months.

But analysts said the winter effects will be temporary and that other signs, including growing exports and the first decline in business inventories in nearly two years, signal a pickup in economic growth later this year.

“Certainly, we’re not out of the woods in terms of very slow growth,” said Richard Berner, an economist with Mellon Bank in Pittsburgh. “But there are some signs that things will be improving gradually.”

The consumer price index shot up 0.4% in January, the steepest jump since a similar increase in October 1993, the Labor Department reported.

The increase was led by a 1.9% surge in energy costs, also the biggest since October 1993. Fuel oil prices were up 8.8%, the biggest gain since October 1990; natural gas was up 0.6%; and gasoline jumped 3.7%. However, electricity was down 0.4%.

But food prices inched up just 0.1% after remaining unchanged in December.

The core CPI--excluding the often-volatile food and energy components--rose 0.3%, the largest gain since a 0.3% increase in October. Contributing to the advance was a 0.7% increase in apparel costs, the largest since August 1993.

Still, many analysts said that because of government difficulties in adjusting for seasonal variations, inflation since 1991 has been sharply higher in the first quarter than its yearly average.

“The spike in the CPI . . . is most likely just a seasonal aberration,” said Jerry Jasinowski, an economist and president of the National Assn. of Manufacturers.

In a separate report, the National Assn. of Realtors said sales of previously owned homes dropped 4.1% in January, to a 3.71-million seasonally adjusted annual rate. It was the fourth straight decline and the biggest since sales fell 4.4% last April.

All regions shared in the decline. Sales were down 3.5% in the West, 6.8% in the Northeast, 4% in the Midwest and 3.4% in the South.

Meanwhile, the Commerce Department reported that business inventories shrank 0.5% in December.

It was the first decline since March 1994 and the largest since March 1991.

Inventories were unchanged in November.

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U.S. Existing Home Sales

Seasonally adjusted annual rate, millions of units:

Jan. 1996: 3.71

Source: National Assn. of Realtors

Consumer Prices

Monthly percentage change, seasonally adjusted:

Jan. 1996: 0.4%

Source: Bureau of Labor Statistics