Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: THURSDAY, February 16, 1995                   TAG: 9502160072
SECTION: BUSINESS                    PAGE: B-8   EDITION: METRO 
SOURCE: Associated Press
DATELINE: WASHINGTON                                LENGTH: Medium

PRICES, INFLATION JUMP IN JANUARY

The Labor Department said its Consumer Price Index rose 0.3 percent in January, with a more ominous 0.4 percent rise in the so-called core rate of inflation, the biggest jump since October 1992. Investors saw those figures as one-time blips, not a signal of runaway price increases.

Economists said it still was likely that the Federal Reserve will boost interest rates at least one more time, probably at its May meeting. But they said that could be the Fed's last tightening move as the impact of seven previous rate increases over the past 12 months begins to slow the economy.

``On balance, what we are seeing is that the U.S. economy is slowing down and inflation remains in check,'' said Bruce Steinberg, senior economist at Merrill Lynch in New York.

In Honolulu, Federal Reserve Chairman Alan Greenspan told a banking conference that, while the evidence still was mixed, several reports suggest the economy is slowing from its torrid pace in late 1994.

Such a slowdown, Greenspan said, ``would be welcome. A moderation is necessary if we are to avoid an intensification of inflation pressures that ultimately would threaten the expansion.''

Despite last year's strong growth, consumer prices rose just 2.7 percent for all of 1994, the third straight year inflation has come in under 3 percent, a fact that Greenspan noted in his speech.

He said given the tendency of the price index to overstate inflation, such a performance meant the Fed had ``gotten close to achieving effective price stability, though we're not there yet.''

The 0.3 percent rise in the overall price index in January followed a string of modest gains of 0.2 percent in December and 0.1 percent in October and November.

While energy prices climbed 0.3 percent in January, led by a 0.4 percent jump in gasoline prices, food costs actually were down 0.2 percent, reflecting falling prices for fruit and vegetables.

The core rate of inflation - which excludes the volatile food and energy sectors - jumped 0.4 percent, compared with a tiny 0.1 percent rise in December.

This advance was led by a 10.3 percent increase in postage costs as the price of a first-class stamp went from 29 cents to 32 cents. Air fares, which had fallen by 10.8 percent in the last four months of 1994, climbed 2.2 percent in January.

Likewise, clothing prices, which had been falling for the past six months, were up 0.7 percent in January.

Many economists insisted that these gains reflected a rebound from an unusually good performance but not the start of an inflationary spiral.

``I refuse to let these numbers panic me,'' said Robert Dederick, an economic consultant at Northern Trust Co. in Chicago. ``There is nothing fundamental here to suggest that inflation is getting out of hand.''

Dederick said he looked for consumer prices to rise 3.5 percent in 1995, only slightly higher than the administration's 3.2 percent forecast.

However, Eugene Sherman, an economist at M.A. Schapiro & Co. in New York, disagreed with the prevailing view that January's price index numbers were an aberration.

``My own view is that this is the beginning of higher inflation rates,'' he said. ``Even though growth is slowing, the economy still has a lot of momentum.''