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Consumer Prices Steady; Retail Sales, Production Strong


Providing further evidence that the national economy is purring along without serious inflation, the government reported Friday that consumer prices edged up modestly in September while retail sales surged and manufacturing production remained relatively strong.

The consumer price index rose just 0.2% last month on a seasonally adjusted basis, after rising 0.3% in each of the previous three months, the Labor Department reported. The modest increase was due to declines in the price of gasoline, heating oil and apparel and stabilization in the price of coffee.

It was the smallest rise since a 0.2% gain in May, and it came a day after the report of an unexpected drop in September wholesale prices. Even excluding the volatile food and energy prices, the so-called core CPI rose just 0.2% in September after rising 0.3% in August.

In the first nine months of the year, consumer prices have risen at a modest 2.8% annual rate, adjusted for seasonal variations. That barely outpaces the 2.7% rate for all of 1993, the department's Bureau of Labor Statistics reported.

"The CPI showed inflation cooling down a bit from the previous three months," said Gary L. Ciminero, chief economist at Fleet Financial Group in Providence, R.I. "It is not as troublesome as the bond market seems to think."

However, investors reacted lukewarmly to Friday's reports. The Dow Jones industrial average gained 20.52 points to 3,910.47, but the broad market was weak: Losers edged winners on the New York Stock Exchange in slow trading. Yields on the benchmark 30-year Treasury bond dipped to 7.83% from 7.85% on Thursday.

But with less than a month before critical midterm congressional elections, the Clinton Administration was quick to take credit for the positive figures.

"Last year, the Administration laid the foundation for a healthy economic expansion by a credible deficit-reduction strategy that made room for broad-based, investment-led growth in the private sector," said Laura D'Andrea Tyson, head of the President's Council of Economic Advisers. "This week's reports, like other reports on the economy issued this year, indicate that this strategy is working for the American people."

Despite the moderate price report, analysts nevertheless believe the Federal Reserve Board is likely to increase short-term interest rates in November to head off any sharp price rises in the future.

A 0.7% decline in energy prices, attributable in part to a glut of crude oil worldwide, was the biggest contributor to the CPI's modest growth last month. Home fuel oil prices fell 0.4% and gasoline prices dropped 0.6%. In addition, coffee prices stabilized after soaring more than 20% in August and July in the wake of a brutal frost in Brazil.

Meanwhile, retail sales showed the economy growing strongly. They jumped in September for the fourth straight month, increasing 0.6% to a record $188.4 billion, the Commerce Department said. For the third quarter, retail sales are up 7.5% over the comparable period a year ago.

"The bottom line is . . . consumer demand is still cooking, it's still humming along," said Brian Jones, an economist at Salomon Bros. in New York.

Excluding autos, a volatile sector that accounts for about a fifth of all sales, total retail sales rose 0.6%, following a 0.7% increase in August.

The growth was strongest among durable goods, including automobiles and other long-lasting items, which rose 1.1% after a 2.4% hike the month before. New car sales were up 0.6% after a strong 2.6% gain in August.

Sales of non-durable goods, including food and apparel, rose 0.3% on the heels of the same increase in August. A notable exception to the general trend was apparel, where sales fell 1.5% in September. Analysts attributed the softness in non-durable goods to warm weather and the desire by consumers to save money to buy more big-ticket items such as cars.

In a third report, the Fed said a strike by workers at General Motors Corp. kept industrial production flat in September after 15 months of increases. The production figure was also attributable to a decline in electrical utility output, analysts said.

Capacity utilization--the rate at which manufacturers run their factories--remained a healthy 84.6%, but that was off from a revised 84.8% in August, the highest level since the late 1980s. The September manufacturing figures allayed fears that bottlenecks, which could lead to future price rises, are likely.

* INFLATION ADJUSTMENT: Social Security recipients to get 2.8% increase in benefits. A21

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