Thursday, September 19, 2002

Consumer prices hint at inflation




By Jeannine Aversa
The Associated Press

        WASHINGTON - Consumer prices in August posted their biggest increase in four months, especially hitting energy users, clothing shoppers and smokers.

        The Consumer Price Index, the government's most closely watched inflation gauge, rose 0.3 percent in August from the previous month, the Labor Department reported Wednesday. The advance, the largest since April, came after a 0.1 percent rise in July.

        “I think there is inflation lurking in those hills,” said Richard Yamarone, an economist with Argus Research Corp. “Currently inflation is not yet flashing red but a lighter shade of yellow.”

        While the latest reading on inflation was slightly worse than the 0.2 percent increase many analysts predicted, it didn't ring alarm bells for economists, who believe that the weak economy will make it difficult for companies to raise prices.

        Food and new-car prices each dipped by 0.1 percent in August. “I think businesses will be struggling to maintain sales; and the only way they are able to do that is through aggressive pricing: sales, discounts and easy financing deals,” said Mark Zandi, chief economist with Economy.com.

        Still, economists said they would be watching energy prices, which have risen recently as tensions escalated between the United States and Iraq. A dramatic rise in energy prices - while a remote scenario - could derail the fragile economic recovery.

        The Federal Reserve last month said economic weakness is a bigger risk for the economy than inflation.

        In other economic news, the Commerce Department reported that the U.S. trade deficit declined to $34.6 billion in July as exports rose for a fifth straight month, helped by a record level of overseas sales of American-made cars and parts.

        Economists hope that the steady rise in exports could signal that better days are ahead for American manufacturers, the hardest hit sector in last year's recession.

       



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