Consumer Price Index Eases in October

After a stormy September, inflation at the consumer level calmed in October, tempered by declining prices for gasoline and tobacco and the biggest drop in airline fares in 16 months.

The Labor Department reported Thursday that its consumer price index, the government’s most closely watched inflation gauge, rose a seasonally adjusted 0.2% in October, following a sharp 0.5% gain.

Surging energy costs accounted for most of the September increase, but those prices were much more subdued in October, helping to restrain overall consumer prices.

Although economists were heartened by the inflation news and believe energy prices will continue to moderate, the report may not offer much solace to consumers likely to face big heating bills this winter.

“For households, they’re still looking at higher costs. Their monthly expenses are up from a year ago, mostly due to higher energy prices,” said Stephen Cecchetti, economics professor at Ohio State University.

Still, economists said the latest reading on inflation justified a decision Wednesday by Federal Reserve Chairman Alan Greenspan and his colleagues to leave short-term interest rates unchanged while keeping close watch on energy prices. The concern is that rising energy prices could lead to higher prices for other products, pushing overall inflation higher.

The inflation report also showed that excluding the volatile energy and food sectors, the core rate of inflation rose 0.2% in October, down slightly from a 0.3% rise in September.

For the first 10 months of this year, consumer prices rose at an annual rate of 3.6%, a sharp increase over the 2.7% rise in 1999. The pickup has come from soaring energy prices.

In October, energy prices eased, rising just 0.2%, compared with a 3.8% increase in September.

Gasoline prices fell by 1.4%, after advancing 5.4% in September. Electricity prices fell 0.1% in October.

Those declines helped to blunt higher prices for natural gas and home heating oil, which last month rose 5.1% and 1.3%, respectively.

Airline fares, meanwhile, fell by 3.5% in October, the biggest decline since June 1999.

Tobacco and cigarette prices, which have been pushed up by the cost of expensive liability settlements, fell 2.8% in October, the biggest drop since March 1999.

Elsewhere in the report, food prices rose a slim 0.1% in October, and new-car prices fell 0.4% as dealers and manufacturers offered incentives and discounts to make room for 2001 models.

In a second government report Thursday, new claims for state unemployment insurance fell last week by 20,000 to 326,000. Even with the drop, claims are at a level suggesting economic growth is moderating.