Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: FRIDAY, January 14, 1994 TAG: 9401140146
SECTION: BUSINESS PAGE: A-5 EDITION: METRO
SOURCE: Associated Press
DATELINE: WASHINGTON LENGTH: Medium
The Labor Department reported Thursday that even the rise in medical costs was more moderate last year, turning in their best performance in 20 years although they still rose twice as fast as the overall inflation rate.
The government also reported that retail sales, propelled by heavy spending on big-ticket items such as cars, were up a surprisingly strong 0.8 percent in December and 6.2 percent for the year, the best showing since 1989.
Analysts said the two reports showed the economy is enjoying the best of possible worlds.
"We can have our cake and eat it, too - strong growth and no inflation," said Robert D. Barr, an economist at the U.S. Chamber of Commerce.
It was the third straight year of modest price increases, the best stretch of inflation news in three decades. Prices were up 3.1 percent in 1990 and 2.9 percent in 1992. Last year's increase was the smallest since a 1.1 percent rise in 1986 that reflected a huge plunge in oil prices.
Economists said they looked for consumer prices to remain docile in 1994 as well, even with a significant pickup in economic activity in the final three months of 1993 that was sparked by the lowest interest rates in a generation.
"We are seeing a very strong economy but no signs of any imminent inflationary pressures," said David Wyss, an economist at DRI-McGraw Hill Inc.
Slack U.S. labor markets, tumbling world oil prices and a global economy still struggling with recession all were cited as reasons inflation should remain under control this year.
The retail sales report showed consumers took advantage of the low interest rates to buy big-ticket items such as autos and furniture in December, the ninth consecutive monthly increase. For the year, auto sales were up 12.4 percent, the biggest gain in nine years.
Even with the strong demand, inflation was subdued in December, with consumer prices edging up just 0.2 percent, the same as in November. A 2.2 percent drop in gasoline pump prices helped to offset a 0.5 percent rise in food costs that was blamed on big increases for vegetables and fruits.
For the year, gasoline prices fell 5.9 percent and stand 20 percent below their peak, which was reached in November 1990, just before the Persian Gulf War.
Because of cigarette price wars, tobacco costs dropped 5.9 percent for the year, the biggest decline on record.
Medical costs were up 5.4 percent in 1993, double the overall inflation increase, but the smallest gain in the medical category since 1973; that year, costs were restrained by Nixon administration price controls.
Analysts suggested that fear of another round of government-imposed price increases as part of an overhaul of the health care system may have helped restrain costs last year.
Food costs were up 2.9 percent for the year, with grocery store prices rising 3.5 percent, compared with 1.5 percent in 1992. Analysts blamed the flooding in the Midwest and other weather problems.
Outside of the volatile food and energy sectors, the core rate of inflation rose a moderate 0.3 percent in December and 3.2 percent for the entire year, the best showing since 1972.
New-car prices rose 2.8 percent over the past 12 months, but this was offset in part by a 5.6 percent drop in financing costs, reflecting falling interest rates.
Airline fares were one of the few areas to post big gains last year, rising 17 percent, including a 2.9 percent jump in December alone.
by CNB