ROANOKE TIMES
Copyright (c) 1997, Roanoke Times
DATE: Wednesday, January 15, 1997 TAG: 9701150108
SECTION: BUSINESS PAGE: B-5 EDITION: METRO
DATELINE: WASHINGTON
SOURCE: Associated Press
Consumer prices rose 3.3 percent in 1996, the biggest increase in six years. But aside from higher energy and food costs, the underlying inflation rate turned in its best performance in 31 years.
``This is a winning combination,'' said Robert Dederick, chief economic consultant at Northern Trust Co. in Chicago. ``We had a solid increase in retail sales, and inflation is still the non-problem of the day.''
The Labor Department reported that the 3.3 percent increase in its Consumer Price Index was the largest rise since a 6.1percent jump in 1990, another year of surging energy costs.
Prices had risen just 2.5 percent in 1995, the fourth straight year that inflation had been below 3 percent, a record not matched since the mid-1960s.
But discounting the spurt in energy and food costs, the underlying rate of inflation was up just 2.6 percent in 1996, matching the 1994 increase and the lowest rate since a 1.5 percent increase in 1965.
The core rate of inflation had risen by 3 percent in 1995 and analysts said it was remarkable to see such an improvement last year, given that the economy was finishing up its sixth year of expansion, a time when tight labor markets normally trigger higher inflation.
``Inflation has never been so low at such an advanced stage of [an economic] cycle, and that's without accounting for the overstatement in the official CPI measure,'' said Bruce Steinberg, senior economist at Merrill Lynch in New York.
For December, overall prices posted a fourth straight 0.3 percent increase, reflecting a 1.6 percent jump in energy costs, the biggest increase since April. But reflecting the pattern for the year, outside energy and food, the core rate of inflation was up a much more modest 0.1percent.
Energy prices, which had fallen by 1.3 percent in 1995, rose 8.6 percent for all of 1996, the biggest advance since an 18.1percent jump in 1990.
Food costs rose 4.2 percent in 1996, the worst showing since 1990. But there as well, analysts said the outlook was more favorable for 1997, pointing to recent declines in grain harvests following bumper harvests.
Aside from food and energy, there was little evidence of any inflationary pressures last year.
The cost of medical care was up just 3 percent in 1996, the smallest annual increase since a 2.8 percent rise in 1965. Clothing costs actually fell for the year, dipping by 0.2 percent, the best showing since a 1.6 percent decline in 1994.
LENGTH: Medium: 53 lines ILLUSTRATION: GRAPHIC: 2 charts by AP.by CNB