WASHINGTON — Consumer prices jumped 0.5% in August, the Labor Department reported Wednesday, exceeding the predictions of financial analysts and prompting warnings that higher inflation is back.
The increase, the largest in seven months, was propelled by spiraling energy and housing costs and pushed inflation to an annual rate of 5.1% so far this year.
"There's a lot of inflation out there," said Irwin Kellner, chief economist at Manufacturers Hanover Bank in New York. "It's across the board, and prices are now going up twice as fast as wages, so we can begin to expect labor contracts to give inflation a further spin."
In a separate report Wednesday, the Commerce Department said orders for large manufactured goods fell 3.1% in August, the first decline since January.
Kellner termed the decrease a sign that the current economic expansion, the longest since World War II, may be weakening. But other analysts, noting that both goods shipments and backlogged orders increased in August, suggested that any slowdown in manufacturing lies at least several months in the future. And other indicators, including the declining unemployment rate, also point to continued, strong economic growth, they said.
The price increases surprised some economists who had predicted inflation for the month between 0.2% and 0.3%. Gasoline prices surged 3.1% and housing 0.6%.
White House spokesman Marlin Fitzwater said the Administration believes the inflationary trend will not continue.
"Whenever inflation goes up, it's not good and when it goes down, it is good," he said. "We do think it's temporary."
But Donald Ratajczak, a price specialist and economic forecaster at Georgia State University in Atlanta, said the housing cost increase suggests particularly that a broader-based inflation is beginning to enter the economy.
"When you add up this report and look ahead, it looks like the . . . inflation we had in the first part of the year--at least half of it caused by oil--will remain even as oil drops out of the picture," he said. "It is beginning to show up in the August wage reports."
With the price spiral, Kellner predicted, unions will begin shifting their negotiating priority from job security to higher wages, an important factor in the inflationary surges in the 1970s.
The United Auto Workers' contract with Ford that was sealed last week "wasn't all that cheap," Ratajczak said.
Indeed, in a separate report Wednesday, the Labor Department said the average worker's weekly earnings leaped 0.9% over inflation in August, the largest such increase since July, 1986.
Some analysts said the fact that fuel price increases were largely to blame for the hike could mean it is a one-month aberration.
John O. Wilson, senior vice president and chief economist at Bank of America, noted that since midsummer, when tensions in the Persian Gulf sent crude oil prices over $20 a barrel for the first time in well over a year, oil prices have stabilized at about $19.50. In addition, he noted, wholesale prices for raw materials and intermediate commodities, also up this summer after many months of virtual deflation, also have leveled off.
Wilson predicted that consumer price inflation this year will be 3.9%, contrasted with 1.9% in 1986, and that it will rise to 4.5% inflation in 1988. Kellner sees the consumer price index rising at an annual rate of 5.5% to 6% for the rest of this year, and by as much as 6.5% or 7% by the end of 1988, at which time he said he believes a recession will be under way.
In the Los Angeles-Long Beach-Anaheim metropolitan area, consumer prices rose 0.8% in August. Over the last 12 months, inflation in Los Angeles was 4.8%, contrasted with 4.3% nationwide.
The national price increase boosted the consumer price index from 328.6 to 342.7, meaning that a market basket of goods costing $10 in 1967 cost $34.27 last month.