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Prices Up by 0.4%, Signaling Moderate Inflation

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

WASHINGTON — The Labor Department reported Friday that gasoline and food prices rose in February, driving up the cost of living 0.4% and signaling the return of moderate levels of inflation after a year of extraordinary good fortune for American shoppers.

Economists predicted that prices will rise by 3.5% to 5% this year, a moderate rate but far above 1986's minuscule 1.1%, when plunging oil prices produced the lowest inflation level in 23 years.

"The best news is over--we were the beneficiaries of dramatic declines that won't happen again," said Donald Straszheim, chief economist for the Merrill Lynch brokerage firm in New York.

Modest Wage Gains

However, he said that modest wage gains and a lack of intense consumer demand for the products of many industries should forestall dramatic price rises this year.

February's 0.4% increase in the consumer price index followed an increase of 0.7% in January, meaning that prices have risen as much in two months as they did during all of last year.

Gasoline prices rose 4.2%, after a hefty 6.6% increase in January. Gasoline costs are still 18% below their level at this time last year and are not expected to rise significantly more.

Food costs were up 0.2%, with increases recorded for fruit, vegetables, baked goods and dairy products. Apparel prices jumped 0.7%, reflecting the introduction of more expensive spring clothing, the Labor Department said.

Medical Costs Soar

Inflation continues to soar for medical care. The 0.3% increase last month means that costs are now up 7.1% from this time last year. In contrast, the economy's general price level has risen just 2.1% in the same period.

In the Los Angeles-Long Beach-Anaheim area, the cost of living increased more than the national rate, climbing 1.3%. Although housing, gasoline and furniture prices all rose faster locally than nationally, Labor Department analysts cautioned that the disparity may be overstated because local inflation figures are less reliable.

Nationally, "we are getting back to normal levels of inflation, the inflation we saw between 1983 and 1985," before the oil price collapse, said Michael Penzer, senior vice president and economist at the Bank of America in San Francisco.

4% Inflation Seen

Penzer predicted that consumer prices should rise by 3.5% to 4% this year, but some experts were more pessimistic, citing the rapid increase in the money supply and the dramatic fall in the value of the dollar, which makes imported goods in the United States more expensive. Ronald Utt, associate chief economist for the U.S. Chamber of Commerce, is forecasting an inflation rate of 5%.

The price of Japanese automobiles has risen substantially in this country, but, so far, less than the 50% jump that would be justified by the change in the comparative values of the dollar and the yen.

"Many of the foreign producers are absorbing some of the decline in dollars into lower profit margins," Straszheim of Merrill Lynch said. "They have a longer-term view and perspective on the business," he said.

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