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Prices Up 4.4% in '87; Highest Level in 6 Years

January 21, 1988|OSWALD JOHNSTON | Times Staff Writer

WASHINGTON — Inflation remained in check in December as consumer prices rose only 0.1%, but the rate for all of 1987 was 4.4%, the highest annual level in six years, the Labor Department reported Wednesday.

Although the annual figure is a huge increase over that of 1986, when consumer prices rose only 1.1%, economists noted that a large part of the rise was caused by a surge in depressed oil prices earlier in the year.

Equals Average Increase

With the volatile oil factor removed, last year's inflation rate would have been 4.1%--about the same as the average increase since 1982.

The 4.4% inflation rate is "very encouraging," said David Wyss of Data Resources Inc., a Massachusetts economic forecasting firm. "If you leave out food and energy, it was about 4%, where it's been for five years. The swings we've seen are mostly oil, so the underlying rate of inflation is unchanged, a good sign."

During December, energy prices dropped, with gasoline down 2.2% and fuel oil down 1.5%, but food prices were higher. Lower prices for new and used autos and clothing also helped keep inflation in check.

In the Los Angeles-Long Beach-Anaheim metropolitan area, consumer price inflation was 5.2% in 1987, higher than nationwide. For December, without the seasonal adjustment that the Bureau of Labor Statistics applies to the nationwide price data, prices edged up 0.3%.

Indeed, before seasonal adjustment, prices nationwide were virtually unchanged. The consumer price index, from which the Labor department computes monthly price changes, dropped by a statistically insignificant 0.1 to 345.7 in December. The index is developed from a base of 100 in 1967, meaning that a selected cross section of consumer goods costing $100 in 1967 now costs $345.70.

Unexpected Components

Wyss said that the 0.1% December inflation rate was in line with the financial markets' expectations but that the components of it were somewhat unexpected.

"Everybody who drives knew gas was cheaper," he said, but the 0.5% jump in food prices was surprising in a month when wholesale food prices dropped 1.3%.

Donald Ratajczak, director of the economic forecasting project at Georgia State University in Atlanta, said that the moderate rate of consumer price inflation during the second half of 1987 bodes well for this year.

"We expect inflation no higher than 3% in the first half of 1988," he said.

Ratajczak found significance in the fact that December's higher food prices were in part offset by lower clothing prices. "We had the same pattern in the spring, when people wouldn't buy the new lines and retailers found they couldn't pass on the import price increases and had to discount.

'Consumers Are Nervous'

"This is going to keep happening, because consumers are nervous and their paychecks aren't getting that much bigger. What you have is a reluctant consumer--but that also means the inflation rate is not going up."

Douglas Cliggott, an analyst for the Merrill Lynch investment firm in New York, saw in that hint of consumer wariness an indication of an economic slowdown that is widely expected this year.

"Prices for new and used autos were down from November," Cliggott noted. "The price declines in apparel were across the board: men's and boys', women's and girls', shoes. What it means is (that), to get the consumer to buy, you have to cut prices."

Cliggott said that, with a slowdown under way in household purchases, "the only growth we can expect this year will be in production of goods for export."

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