Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SATURDAY, May 13, 1995 TAG: 9505150067
SECTION: BUSINESS PAGE: A-6 EDITION: METRO
SOURCE: Associated Press
DATELINE: WASHINGTON LENGTH: Medium
The Labor Department report Friday showed prices climbing at their fastest clip since last August, as the cost of food, gasoline and air fares all shot up. Flooding in California was a big factor in the food increase.
Analysts suggested the inflation burst was only temporary.
``We feel the economy has slowed enough that inflation will not get out of hand,'' said Joel Prakken, an economist at Laurence H. Myer & Associates in St. Louis.
Financial markets, which have been bolstered partly out of a belief that a slowing economy would keep the Fed from raising interest rates further, took Friday's report in stride.
Analysts said the economic evidence is mounting that the Fed has achieved its hoped-for soft landing in which it slows economic growth enough to keep inflation under control without tipping the country into a recession. During the 12 months ending in February, the central bank doubled a key short-term interest rate in seven separate tightening moves.
Bruce Steinberg, senior economist at Merrill Lynch, said the worse-than-expected report on consumer prices, which followed Thursday's report of a disappointingly high 0.5 percent jump in wholesale prices, had to be viewed in the context of the slowdown in the economy.
``We believe that inflation pressures will remain moderate,'' he said. ``Everything the Fed wanted to happen is happening.''While some economists had been forecasting that the economy might be slowing so much that the central bank would soon begin lowering interest rates to guard against a recession, Steinberg said he did not see that occurring, especially now in light of the inflation reports.
``My feeling is that the Fed is on hold until 1996. Only if the economy suddenly got much weaker this summer would the central bank consider easing,'' he said.
The 0.4 percent advance in the CPI for April was double the 0.2 percent increase in March and was the biggest jump since a similar 0.4 percent rise last August.
For the year, consumer prices have been rising at an annual rate of 3.6 percent, a significant pickup from the 2.7 percent increase for all of 1994. However, many economists stressed that much of last month's price pressures, in the form of higher food and energy costs, reflected temporary factors that will be reversed in the months ahead.
The acceleration in inflation was blamed on a 1.2 percent rise in the price of food consumed at home. It was the biggest jump in food prices since February 1990, with 80 percent of the surge blamed on a 7.5 percent rise in fruit and vegetable prices, reflecting in large part the California floods.
Lettuce prices rose a record 113.1 percent; tomatoes were up 15.6 percent.
There also was a sharp turnaround in energy prices, which rose 0.4 percent after falling 0.5 percent in March. The price of gasoline was up 0.6 percent, the biggest gain since November.
Airline fares climbed 3.4 percent. For the year, airline tickets are up 10.6 percent.
Also Friday, the Commerce Department said business inventories rose 0.7 percent in March, including a 0.4 percent advance on the retail level that was paced by a big buildup on automobile dealers' back lots.
Inventories totaled a seasonally adjusted $942.7 billion, up from $936.1 billion in February. The February advance was revised to 0.8 percent from 0.9 percent.
Business sales were flat in March at a seasonally adjusted $675.3 billion. It was the first time sales had not risen since September, when they fell 0.2 percent.
The inventories-to-sales ratio was 1.4 in March, highest since 1.41 in July. That meant it would take 1.4 months to exhaust stockpiles at the March sales rate. It still was a historically low rate.
by CNB