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Inflation Takes Big Leap in January; Trade Deficit Up

February 28, 1987|ROBERT A. ROSENBLATT | Times Staff Writer

WASHINGTON — The economy suffered a double dose of bad news Friday, with the government reporting that January recorded both the biggest monthly spurt of inflation in almost five years and a massive $14.8-billion trade deficit.

Sharply rising gasoline prices were the main reason that consumer costs rose 0.7% last month, but experts said that they still expect a moderate inflation rate of 3% to 4% for the full year.

The trade prospects were more bleak, however. Despite a falling dollar that makes U.S. goods more competitive in price on world markets, the monthly trade gap exceeded the revised estimate for December of $12.7 billion, according to the Commerce Department.

Sen. Lloyd Bentsen (D-Tex.), chairman of the Senate Finance Committee, chastised the Reagan Administration, charging that its "ineffectual 'Mr. Peepers' style" in dealing with the trade issue "isn't doing the job."

At January's rate, the deficit is growing at a pace that--on an annual basis--could surpass last year's record of $170 billion. "We cannot just stand by and let that happen," said Bentsen, who is pushing trade legislation in Congress.

The January report showed U.S. imports from Japan, Canada and Taiwan still far exceeding exports. Overall, imports jumped 7% to $31.2 billion, while exports shrank to $16.4 billion, the lowest level since August, 1983.

The big monthly deficit "represents a serious setback to hopes for an improved U.S. trade position in 1987," said Jerry Jasinowksi, chief economist for the National Assn. of Manufacturers. He traced falling exports to a slowdown in economic growth abroad. U.S. officials are hoping that lower interest rates in West Germany and Japan will spur economic growth, increasing the demand for American-made goods.

January's inflation surge may have ended an interlude of extraordinarily stable prices. "We've seen the low point of inflation for the rest of the century," said Jerry L. Jordan, president of the National Assn. of Business Economists and a former member of President Reagan's Council of Economic Advisers.

Gasoline May Have Peaked

However, with wholesale oil prices now falling, a continuation of January's 6.6% jump in gasoline prices is considered unlikely.

Overall, consumer prices are expected to rise between 3.5% and 4% this year, "and that's not a rate to be overly concerned about," said Lawrence Chimerine, president of Chase Econometrics, a forecasting firm in Bala-Cynwyd, Pa.

Last year, primarily due to the dramatic energy slump, prices rose a minuscule 1.1%, the lowest inflation rate since 1963.

The 0.7% cost of living increase in January far surpassed December's 0.2% rise and was the biggest monthly rise since a 1.1% leap in June, 1982. The inflation rate in the Los Angeles-Long Beach-Anaheim region was also 0.7%.

Food Costs Rise

Nationally, food costs increased 0.5%, compared to 0.2% in December, with prices rising for fruit and vegetables, fish, frozen foods and soft drinks. Housing prices rose 0.5% and medical expenses continued to increase more rapidly than the general cost of living.

The poor trade report comes as Congress, impatient with the loss of American jobs to imports, appears to be on a collision course with the Reagan Administration over trade legislation.

Bentsen is promoting a legislative package that would require foreign countries to open their borders to American goods or else face new restrictions on selling products in this country. Administration officials warn against Congress taking a "macho" attitude that could set off trade wars, with other nations retaliating against U.S. protective measures.

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