CPI Up Slightly Despite Tight Labor Markets
Consumer prices rose modestly in September, the Labor Department said Thursday in a report suggesting restrained inflation pressures, though job markets remained tight.
The government said its consumer price index rose 0.2% after an identical August gain, soothing financial markets worried that a steeper price spike might heighten chances of interest rate hikes by the Federal Reserve Board.
The smaller-than-anticipated rise in the CPI suggested that a big 0.5% bump upward in September producer prices, reported last week, was not being fully passed through to the consumer, so chances of a price spiral were small.
But economists warned of a dark lining in the silver cloud. The modest September CPI advance underscores businesses’ inability to pass on higher labor costs to customers.
“At some point that will crunch profits,” said economist Paul Getman of Regional Financial Associates in West Chester, Pa. “Ultimately, that may be what derails the stock market, not higher rates, but the inability to pass on higher costs.”
For the first nine months of the year, the CPI has risen at an annual rate of just 1.8%, compared with 3.3% last year.
Excluding food and energy costs, which bounce around from month to month, so-called core inflation is 2.2% so far this year. If sustained for the rest of the year, that would be the best performance since 1965.
A separate report on applications for jobless benefits, however, carried the seeds of longer-term worry for inflation as new applications for jobless benefits rose only slightly by 2,000 to 306,000 last week--the fifth straight week in which new claims were under 310,000.
The government said it was the longest time in nearly a decade, since a 12-week period that ended on Nov. 19, 1988, that jobless claims had come in under 310,000 weekly.
“It’s an extremely low number and reflects the fact that markets are out there looking for labor rather than labor having to search for markets,” said Robert Dederick, economic consultant to Northern Trust Co. in Chicago.
Fed Chairman Alan Greenspan has expressed concern that tight labor markets might foster large wage demands that could become inflationary, though there is scant evidence of it yet.
White House economic advisor Janet Yellen told an economic forum that the September CPI report demonstrated that inflation was well-contained and that the 6 1/2-year-long economic expansion showed no sign of winding down.
A third report on Thursday, from the Commerce Department, showed overall business inventories climbed in August by a moderate 0.2% to a seasonally adjusted $1.030 trillion after a 0.1% increase in July. Sales were down 0.5% to $745.05 billion following a 1% July jump.
Energy was the only area that reflected much upward price pressure in September’s CPI. Energy prices climbed another 1.3% in September after a 1.7% jump in August.
But food prices edged up just 0.1% following a 0.4% gain in August as prices for goods like fruit and vegetables, coffee and for meats, poultry and fish fell last month.
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Consumer Price Index
Monthly percentage change, seasonally adjusted:
September ‘97: 0.2%
Source: Bureau of Labor Statistics
