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Inflation Rate for October a Slight 0.1% : Economy: Consumer price index report prompts criticism--and support--of Fed's latest interest rate hike.

November 17, 1994|From Times Staff and Wire Reports

WASHINGTON — Consumer prices barely budged in October, the Labor Department reported Wednesday, offering more proof that inflation remains largely in check despite signs of consistently strong economic growth.

The consumer price index rose just 0.1% last month, following September's 0.2% advance.

In the greater Los Angeles area, consumer prices rose 0.5% in October but are up just 1% for the year through October, the Labor Department said.

Sam Hirabayashi, the Bureau of Labor Statistics regional commissioner in San Francisco, attributed last month's increase mainly to higher grocery and private transportation costs.

The report follows by a day the Federal Reserve Board's attempt to ward off future inflation with a larger-than-expected boost in interest rates.

The central bank jacked up key short-term interest rates Tuesday by three-quarters of a percentage point--its sixth increase this year--in an attempt to slow the economy to a less inflationary pace.

But last month's overall gain in the closely monitored inflation gauge was the smallest since prices posted a similar rise in April.

Fed critics quickly seized on Wednesday's benign inflation report--energy and clothing prices actually fell--as proof that the central bank had needlessly increased the threat of recession by voting the biggest increase in interest rates in 13 years.

"Inflation is not a threat," said Jerry Jasinowski, president of the National Assn. of Manufacturers and a leading Fed critic. "The Federal Reserve's aggressive increase in interest rates yesterday was unnecessary."

Critics argue that the Fed has failed to realize that dramatic changes in the U.S. economy, including increased foreign competition, mean the economy can grow at faster rates with lower unemployment without raising inflation threats.

But other economists support the central bank, saying that at this stage of the recovery, with U.S. industry operating at a 15-year high and unemployment down to 5.8%, there is a need to slow growth to keep inflation from getting out of control next year.

Many economists insisted that the Fed's efforts to achieve a "soft landing"--growth slow enough to keep wage and price pressures under control--appear to be working.

A drop of 0.7% in October energy prices helped hold down the overall consumer price index. Food prices, which remained unchanged, also tempered the general advance. In September, energy prices also fell 0.7%, while food prices rose 0.3%.

But even without the impact of the often-volatile food and energy segments, the so-called core rate of inflation showed an increase of only 0.2%.

The CPI figures show inflation rising at a pace that was slightly slower than forecast. Economists on average had predicted that consumer prices would rise 0.2%. Excluding food and energy, they expected prices to rise 0.3%.

Other data released by the government suggests that the economy could strengthen further.

American workers' average weekly paychecks jumped in October, the biggest monthly increase in more than a decade. Average weekly earnings rose 1.5% last month, the largest advance since a 2.3% gain in February, 1982, the Labor Department said. Earnings rose 0.7% in September.

Because consumers account for about two-thirds of the nation's economic activity, the buying power of the average worker is viewed as key to future growth.

In another report, the Commerce Department said inventories held by American businesses rose in September for a sixth straight month as businesses kept building stocks before the coming holiday sales season.

Total business inventories increased 0.5% to a seasonally adjusted $907.2 billion--well above Wall Street economists' expectations of a slim 0.1% rise--following a 0.9% gain in August.

Consumer Price Index

Percent change from prior month, seasonally adjusted:

Oct., '94: 0.1%

Source: Labor Department

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