ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Thursday, February 29, 1996 TAG: 9602290064
SECTION: BUSINESS PAGE: B-7 EDITION: METRO
DATELINE: WASHINGTON
SOURCE: Bloomberg Business News
Prices Americans paid for goods and services rose 0.4 percent in January as surging energy costs contributed to the largest monthly increase in inflation in more than two years, Labor Department figures showed.
Separately Wednesday:
* The Commerce Department reported that the U.S. merchandise trade deficit rose 5.0 percent last year to a record $174.5 billion, although exports showed strong growth in the later half of the year.
* The National Association of Realtors, a private realty group, said U.S. home resales fell for the fourth consecutive month in January, suggesting that low mortgage rates aren't enough to overcome home buyers' concerns about the slowing economy.
* And Commerce Department figures showed that stockpiles of unsold goods at U.S. businesses shrank 0.5 percent in December. It was the first decline in almost two years, an indication that companies ratcheted down their production in anticipation of weak Christmas sales.
Taken together, the reports raise new questions about whether the Federal Reserve will cut interest rates at a March 26 policy meeting, analysts said. ``If the Fed has to choose between sluggish growth and higher inflation, they will sit on their hands'' at the next meeting, said Cary Leahey, an economist with Lehman Brothers.
Still, analysts note that government inflation statistics tend to be highest in the early months of the year. ``The outlook for inflation is slightly higher than last year, but not high enough'' to upset financial markets, said Patrick Retzer, director of fixed income at Heartland Advisors in Milwaukee, which manages $300 million in bonds.
In its inflation report, the Labor Department reported that energy prices rose 1.9 percent last month as demand for home heating oil and gasoline pushed prices higher.
Even disregarding often-volatile food and energy costs, the consumer price index rose 0.3 percent in January. The finding, coming a day after the government reported little change in producer prices, suggests the consumer inflation outlook may not be as benign as previously thought.
For all of 1995, consumer prices rose just 2.5 percent. Most analysts are expecting inflation to remain subdued this year.
Retail food prices, which make up 16 percent of the index, increased 0.1 percent last month, as lower prices for fruits, vegetables, beef and pork offset higher poultry costs. Clothing costs rose 0.7 percent.
Last month, medical costs rose 0.4 percent, and entertainment and housing costs both increased 0.3 percent. Transportation costs rose 0.7 percent, though airline fares fell 0.9 percent. Auto finance charges, meantime, fell 2.5 percent.
In its trade deficit report, the Commerce Department said December's overall 1 percent rise in the shortfall in goods and services was the first monthly increase since June, though the level is almost half that seen in the first part of the year.
The monthly deficit with Japan was the narrowest since May 1992, and the annual deficit with Japan declined for the first time in four years, falling to $59.280 billion from $65.668 billion during 1994.
LENGTH: Medium: 65 lines ILLUSTRATION: GRAPHIC: Charts by AP. 1. Trade deficit. 2. U.S. trade in goodsby CNBand services. 3. Existing home sales.