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Consumer Prices Edge 0.2% Higher in Month

February 27, 1985|OSWALD JOHNSTON | Times Staff Writer

WASHINGTON — Consumer prices rose a scant 0.2% last month, the Labor Department reported Tuesday, boosting the Reagan Administration's hopes that inflation will continue to be low in 1985.

The report showed modest price increases in virtually every category, despite a 1.1% surge in fruit and vegetable costs caused by the recent winter freeze in the Southeast. But energy prices were sharply lower, with gasoline down 1.4% and home heating oil off 2.9%, both well below their peaks in 1981.

At the White House, spokesman Larry Speakes quickly seized on the report as continuing proof that the Administration's economic policy is working, calling it "particularly good news at this stage of the business expansion. . . . Prices are down and staying down."

Economists Agree

Private economists tended to agree. "The back of inflation has been broken," declared Donald H. Straszheim of the investment firm of Merrill Lynch & Co.

For all of last year, the Labor Department said, the consumer price index was up only 4%, tapering off to about half that pace during the last three months of the year. January's figures would continue that slowing trend, if computed on an annual basis using more precise calculations, and would show a 12-month rise of only 2.3%, the department said.

In greater Los Angeles, the index showed a 0.6% increase for January and a 4.5% increase for all of 1984.

In a second report, the Commerce Department noted that factory orders for durable goods increased 3.8% last month to a record $105.98 billion. But the report also included a disappointing 11.5% decline in the important category of non-defense capital goods. Defense orders offset that drop by rising 12.9%, while orders in the volatile category of primary metals, such as steel, soared 14.9%.

'Right on Track'

Pointing to the consumer price report, Straszheim said: "It is crystal clear that inflation in the 3% to 4% range over the next two years is a very solid bet."

As evidence, he noted the dollar's continued strength against other currencies, the probability of further oversupplies in agriculture and petroleum and the trend toward low wage increases across the board.

Similarly, Donald Ratajczak, head of the economic forecasting project at Georgia State University, declared the January figure was "right on track" toward his prediction of 3.5% consumer price inflation for all of 1985.

"The one item that could upset it is a fall in the value of the dollar," he said. "But the dollar has moved up so far so quickly that its current value isn't even in the marketplace yet."

In short, Ratajczak suggested, the dollar could lose everything it has gained since the beginning of the year without affecting current prices--and if the dollar holds its present strength, energy and other internationally traded commodities may face another sharp drop in late spring.

Robert Gough, an economist with the Lexington, Mass., forecasting firm of Data Resources Inc., saw the report as especially encouraging for Federal Reserve Board policy in the near term. Noting that Fed Chairman Paul A. Volcker recently warned Congress that the Fed would not continue easing its grip on the money supply, Gough said Tuesday's report "couldn't have been better, coming on the heels of Volcker's testimony."

Gough added: "For him (Volcker), the war on inflation still isn't over. With the economy expanding at a 4% or 5% rate, there was a chance inflation might have edged up even 0.4% or 0.5% last month. Now there is no cause for Volcker to get alarmed this early in the year."

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