Low Inflation Spurs 5.1% Rise in Retail Sales

A big drop in gasoline prices last year shrank U.S. inflation to the lowest level since the 1960s, and Americans responded to the increased purchasing power with a spending spree on autos and other retail goods, government figures showed Thursday.

With a scant 0.1% rise in December, consumer prices rose just 1.6% for all of 1998, even less than the 1.7% increase in 1997, the Labor Department said. It was the best back-to-back annual inflation performance since 1964-65.

Retail sales--representing a third of the nation’s economic output--surged 5.1%, the Commerce Department said, an improvement over the 4.3% gain in 1997.

“Consumers just aren’t leaving this party,” said economist Bill Cheney of John Hancock. “Buoyed by a strong job market, rising wages, low interest rates, almost nonexistent inflation, a soaring stock market . . . they aren’t even getting tired.”

Retailers got an added boost in December, when sales jumped 0.9% and auto sales rose 2.5%. For the year, auto sales increased 5.7%, despite strikes that halted General Motors’ production in June and July. Auto companies sold 15.6 million cars and light trucks last year, the most in 12 years.

The increase in Americans’ appetite for consumption came at an opportune time, offsetting weaker exports and factory production, the result of slumping demand in Asia and elsewhere around the world.

Many economists are looking for the weakness to spread to the rest of the U.S. economy this year.

In details of last year’s inflation performance, the Labor Department said energy prices fell 8.8%, the most in 12 years. That included a 15.4% decrease for gasoline. Food prices rose 2.3%.

Core prices, minus the volatile food and energy sectors, rose 2.2%. But a record 31.8% increase for tobacco accounted for all of the acceleration.

Retail sales in 1998 were strongest at building supply and hardware stores, up 10.3%, and furniture stores, up 8.6%, both reflecting record home sales.

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Consumer Price Index

Monthly percentage change, seasonally adjusted:

1998, December: +O.1%

Source: Bureau of Labor Statistics

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Retail Sales

In billions of dollars, seasonally adjusted:

December, 1998: $231.4 billion

Source: Commerce Department