Thursday, September 16, 1999
Low inflation not fazing Fed
Core rate just 1.9% for '99
BY MARTIN CRUTSINGER
The Associated Press
WASHINGTON — Motorists got another shock at the gasoline pumps last month, but elsewhere, consumer prices remained subdued.
Falling costs for clothing, computers, airline tickets and new cars pushed the core inflation rate to the lowest level in 33 years, the government reported Wednesday.
The Labor Department said Wednesday that its Consumer Price Index (CPI) was up 0.3 percent overall in August, but outside of the volatile food and energy areas, prices rose just 0.1 percent.
In the past year, this so-called core rate of inflation has risen just 1.9 percent, the smallest increase since a 1.8 percent rise in core prices in the 12 months ending April 1966.
Even so, many economists said they still expected the Federal Reserve will raise interest rates for a third time this year at its meeting Oct. 5.
“Inflation remains very mild, but the Fed is looking at indicators showing that the economy is growing about twice as fast in the current quarter as it did in the spring,” said Paul Taylor, chief economist at the National Automobile Dealers Association.
Analysts said reports showing unemployment returned to a 29-year low of 4.2 percent in August while retail sales shot up at their fastest clip in six months will keep Fed officials worried about inflation threats down the road.
“Core inflation remains totally absent, but the unrelenting strength of the economy will probably lead the Fed to tighten,” said Gerald Cohen, economist at Merrill Lynch in New York.
The Fed already has nudged short-term rates up by one-half percentage point in two moves this summer trying to slow the economy enough to keep inflation at bay.
Record trade deficits are one of the reasons analysts cited for the good performance on inflation. Automakers and other U.S. manufacturers have been unable to raise prices because of stiff competition from cheaper-priced imports.
So far this year, inflation at the consumer level is rising at an annual rate of 2.6 percent. While this is up from the 1.6 percent rise in prices for all of 1998, the best showing in 12 years, all of the gain has come from a rebound in energy prices, which fell last year because of global oversupply.
The government said two- thirds of the 0.3 percent CPI increase last month came from the 2.7 percent monthly jump in energy prices, which followed a 2.1 percent July spurt in energy costs.
Gasoline prices surged by 5.6 percent, continuing a trend that has pushed pump prices up by 25.1 percent this year.
Food costs last month edged up a slight 0.2 percent, a modest advance.
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