Path: bloom-picayune.mit.edu!snorkelwacker.mit.edu!americast.com!americast.com!americast-post Newsgroups: americast.ibd From: americast-post@AmeriCast.Com Organization: American Cybercasting Approved: americast-post@AmeriCast.com Subject: \TITLE Date: Mon, 16 Nov 92 12:56:07 EST Message-ID: <4.1992Nov16.125608@AmeriCast.com> 11/16/92 TITLE #m#gm#m#Inflation Gives A Brief Scare On Friday 13th But Analysts Say 0.4% CPI Gain In Oct. Is One-Time Event Chuck Freadhoff After months of good inflation news, the Labor Department issued what appeared to be some bad news Friday, saying consumer prices rose an unexpectedly high 0.4% in October. Most economists, however, dismissed the jump as a one-month aber- ration, not a harbinger of rising costs. Still, it was the big- gest jump in the consumer price index since a 0.5% rise last March, the government said. Inflation was 3.2% higher in October than a year earlier. The consumer price index hit 141.8 for the month, compared to its 1982-84 base of 100. However, other re- cent inflation indicators, such as a report early in the week that prices at the producer level rose only 0.1% in October, still seem to show there is little danger of a resurgence in prices. In separate reports, the government reported a bigger- than-expected gain in retail sales and higher earnings for Ameri- can workers. With consumer confidence also apparently on the rise, analysts said the Federal Reserve will likely hold off lowering interest rates for now. The Fed's policy-making body, the Federal Open Market Committee, meets next week to determine where to set short-term interest rates. "I don't think the Fed is going to ease after the FOMC meeting. They've had that room (to ease) for quite awhile and chose not to use it," said Robert McGee, an economist with Tokai Bank in New York. Economists at- tributed the CPI's rise to one- time factors such as an end to the air-fare wars and rebuilding after last summer's hurricanes. The sudden jump in the CPI doesn't mean inflation has returned, they said. In addition to higher air fares, the index was driven up by rising housing Inflation Gives A Brief Scare On Friday 13th costs, higher prices for tuition and tobacco and increased food and energy prices. But even without the volatile food and energy components, the CPI took a big jump. The so-called core rate of inflation, which eliminates energy and food costs, was 0.5% in October. That was the biggest jump since a similar hike in Febru- ary. Also Friday, the Commerce Department reported that retail sales rose 0.9% in October, an indication that the economy final- ly may be showing signs of a recovery. Another sign that consu- mers, the backbone of the economy, soon may be ready to return to the nation's showrooms and malls came from the University of Michigan's consumer confidence report, released Friday. The overall confidence index rose to 83.6 in November from 73.3 in October. The report also indicated that consumers feel more con- fident about the future, with the expectations index rising to 75.1 in November from 67.5 in October and 67.4 in September. Consumers also have a little more money to spend, according to other Labor Department statistics released Friday. Real average weekly earnings rose 0.4% between September and October, when seasonally adjusted, according to the department's Bureau of La- bor Statistics. Earnings rose through a combination of a slightly longer work week and a 0.2% increase in average hourly earnings, the bureau reported. McGee and other economists said the Fed shouldn't be worried about inflation right now. The CPI, McGee said, "is not really a leading indicator. It doesn't say anything about future inflation." Instead, the October report may be little more than a reminder of how the vagaries of nature can play havoc with economic plans and projections. While the biggest reason for the rise in October's CPI was higher airline costs, a jump in the cost of shelter also helped push the index up. Blame the hurri- canes that devastated parts of Florida and Hawaii for the surge in housing costs, said Lacy J. Hunt, chief economist at the HSBC Holdings in New York. As residents started searching for places to live and began rebuilding, "there were quite a few costs that were artificially boosted," Hunt said. The tremendous demand for lumber and plywood, coming on top of higher prices nationwide, helped push up housing costs, Hunt said. The higher cost#m##m# of housing "was clearly related to the hur- ricanes' effects," he said. There is little reason to believe the cost of housing will continue to rise,#m##m# fueling infla- tion in the coming months, economists say. "Inflation is dead," Thomas Carpenter, chief economist at ASB Capital Management in Washington, said Friday. "I think today's number was a blip." The cost of housing, after rising only slightly for three months "was due to get back to trend," he said. "Unfortunately, we had to do it with a big increase, a 0.4% rise this month." Carpenter also dowplayed higher airline prices and rising tobacco costs. Both items fueled the CPI rise in October. The cost of air travel jumped a huge 7.8% in October, as airlines pushed up prices that had been lowered during fare wars last summer. It was the biggest one-month jump in air travel since 1969, the year the government began tracking the air travel costs as a separate catagory. Given the poor health of the air travel industry and continued weak demand, there is little chance the airlines will push prices higher in coming month, Carpenter said. "They just don't have the pricing power," he said. Another factor in the CPI's gain, tobacco prices - which rose 1.5% -#m##m#probably won't continue to climb, he said. Demand is not strong enough to keep pushing prices higher, Carpenter said. There are also other signs that the October CPI report was an aberration, economists said. Two widely followed commodity price indexes#m##m# show raw the cost of raw materials is falling, not rising. "You've got to look at the big picture. Inflation is running at an annual rate of 3.1% for the first 10 months of the year," Carpenter said. The CPI figures also included some hopeful signs. Fruit and vegetable prices fell 0.2% after rising 2.1% in September. Overall, food prices rose only 0.1% in October. Energy prices, however, shot up 0.5%. Gasoline prices reversed a two-month decline to rise 0.6% in October. Home-heating oil, natural gas and electricity all cost more in October as well. This article is copyright 1992 Investors Business Daily. Redis- tribution to other sites is not permitted except by arrangement with American Cybercasting Corporation. For more information, send-email to usa@AmeriCast.COM