Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: FRIDAY, February 18, 1994 TAG: 9402180123
SECTION: BUSINESS PAGE: A9 EDITION: METRO
SOURCE: Associated Press
DATELINE: WASHINGTON - LENGTH: Medium
But some economists said the Labor Department report showing no change in the monthly Consumer Price Index - the first in more than four years in which costs did not rise - may be misleading, because the government is using a new method of calculation.
"On the surface, it's good," said Michael Niemira of Mitsubishi Bank in New York. "But the change in method has to be taken into account."
The revision, reported Tuesday, is supposed to smooth seasonal fluctuations that mean bigger inflation changes early each year and smaller ones later on.
Although the new method will affect the seasonally adjusted figures each month, they will not affect year-over-year figures, which are not adjusted.
Under the discarded system, the CPI would have risen 0.3 percent in January.
But even so, economists said the report is encouraging, noting that underlying inflation - excluding food and energy - inched up a mere 0.1 percent.
"It's excellent news for consumers, particularly the decline in oil and gasoline prices," said David Rolley of DRI/McGraw-Hill in Lexington, Mass. "The core rate will tend to calm down people about any imminent inflation risk."
"All of the fundamentals of inflation say that inflation will stay very, very low for a very, very long time," said Allen Sinai of Lehman Brothers in New York.
The last time the Consumer Price Index did not budge from the previous month was in August 1989. The last declines occurred in early 1986, when oil prices plunged.
The latest report is on the heels of a modest 2.7 percent rise in the CPI for all of 1993 and a slight 0.2 percent increase in December.
The latest figures may have little effect on the Federal Reserve Board, some economists cautioned. The Fed nudged short-term interest rates up in January in an apparent pre-emptive strike against inflation.
"Frankly, I think the Fed is not finished." Rolley said. "The strength of the economy is going to drive the Fed's tightening of credit, not inflation."
Many analysts had expected a 0.3 percent advance in the CPI in January, fueled in part by higher demand for energy brought on by cold weather. But energy costs dropped 0.8 percent, extending last year's trend.
All components posted declines - fuel oil, down 1.9 percent; electricity, down 1.1 percent; natural gas, down 0.4 percent; and gasoline, down 0.4 percent. Petroleum prices have fallen in recent months because of overproduction in foreign oil fields.
Food prices were down 0.1 percent, the first decline since June. They rose 0.5 percent in December. The cost of fresh fruit led the drop, declining 4.2 percent, followed by fresh vegetables, down 3.9 percent. The cost of beef and veal declined 0.3 percent, while poultry prices were down 0.4 percent.
Transportation costs, including gasoline prices, declined 0.2 percent, although new car prices were up a slight 0.1 percent. Airline fares dropped 2 percent.
Medical-care costs were up 0.3 percent for the third straight month. These costs had risen just 5.4 percent in 1993, the smallest gain in the medical category since 1973.
The cost of shelter rose 0.2 percent, down from a 0.3 percent increase the previous two months. Renters' costs were unchanged, but homeowners' costs rose 0.2 percent.
Prices for apparel were down 0.1 percent. Entertainment costs rose 0.3 percent. Tobacco prices were down 0.5 percent.
by CNB