Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: TUESDAY, April 17, 1990 TAG: 9004170604
SECTION: NATIONAL/INTERNATIONAL PAGE: A/1 EDITION: EVENING
SOURCE: Associated Press
DATELINE: WASHINGTON LENGTH: Long
The Labor Department blamed last month's increase in the Consumer Price Index in large part on a jump in housing costs and another surge in new clothing prices, although there were widespread increases in a variety of retail areas.
The 0.5 percent rise matched February's gain and followed a 1.1 percent increase in January.
Private economists were caught by surprise by the brisk March advance, which they termed a disappointing sign that inflation was not slowing as they had hoped. Many analysts had been looking for a modest increase of around 0.2 percent.
"The CPI shows an entrenched, unacceptably high rate of inflation," said Allen Sinai, chief economist of the Boston Co. "The inflation result was dangerous and potentially devastating for financial markets and the economy."
Through the first three months of the year, consumer prices have risen at an annual rate of 8.5 percent. That is the fastest quarterly increase since the spring of 1982 and is far above the 4.6 percent price increase for all of 1989.
Today's bad inflation news was likely to strengthen the resolve of the Federal Reserve to resist pressures from the Bush administration to lower interest rates. Sinai predicted that if inflation does not retreat soon, the Fed may even begin pushing interest rates upward, something it has not done for over a year, in an effort to dampen price pressures.
"The message is that it may take more pain, more restraint on the economy, to get inflation down to acceptable levels," he said.
In other economic reports today, the government reported that industrial production rose 0.7 percent in March while the nation's factories, mines and utilities operated at 83.3 percent of capacity, an increase of 0.4 percentage point, reflecting a rebound in auto production.
However, housing construction fell by 9.3 percent, its second monthly decline and the biggest setback in more than a year. The Commerce Department said new homes and apartments were being built at an annual rate of 1.32 million units in March.
On Wall Street, stock prices opened broadly lower today with traders attributing the weakness to the higher-than-expected inflation figure, which dashed hopes that the Federal Reserve might relent and lower interest rates.
The Dow Jones industrial average was off 13.51 points as of 10 a.m. with declining issues holding a 4 to 1 lead over advancers.
In the inflation report, housing costs climbed 0.5 percent in March, pushed upward by a sharp 1 percent rise in the cost of owning a home. Homeowners' cost had actually fallen 0.1 percent in February.
The advance in housing costs accounted for almost one-half of the overall March increase.
Higher clothing costs contributed to more than one-fifth of the increase as apparel prices rose by 1.6 percent, following a record 3.3 percent increase in February.
Many economists had been looking for prices to moderate in March, aided by lower food and energy costs.
Energy prices were down during the month, dropping by 0.8 percent, pushed lower by falling gasoline prices and another big drop in home heating oil costs.
Food prices rose 0.4 percent during the month, slightly better than the 0.5 percent increase in February, as a big drop in fruit and vegetable prices offset increase in other areas.
Prices excluding the volatile food and energy sectors were up sharply as well in March, climbing 0.7 percent, the fastest increase since a 0.8 percent rise in December. Economists believe this core rate is a better gauge of underlying inflationary pressures.
The 8.5 percent annual rate of increase for the first three months of the year was the fastest advance since a 10.1 percent increase in the spring of 1982.
Rising food prices accounted for about one-fourth of the price acceleration so far this year.
Clothing costs, which rose just 1 percent for all of 1989, were up at an annual rate of 21.4 percent during the first three months of this year.
The department gave the following details of the price report:
Fruit and vegetable costs, which had been driven higher by December's killer freeze, retreated slightly in March but prices for meat, poultry, fish and eggs were up by 0.7 percent.
Gasoline prices fell by 1.4 percent, the first decline this year, while heating oil prices dropped by 3.4 percent following a 16.1 percent plunge in February. Fuel oil costs have been on a roller coaster this year, surging 26.9 percent in January in response to unusually cold weather in December.
The 1.6 percent increase in clothing costs was led by a 2.7 percent increase in the cost of women's and children's clothing. Men's clothing costs were up 0.6 percent.
The various changes left the Consumer Price Index at 128.7 before seasonal adjustments. That meant that a hypothetical selection of goods and services costing $100 in the 1982-84 base period would have cost $128.70 last month, up from $122.50 a year ago.
One reason the 0.5 percent March increase took analysts by surprise was that it followed a more benign report on inflation at the wholesale level. The government reported last Friday that prices one step short of retail actually fell by 0.2 percent in March.
by CNB