U.S. Inflation turns flat as cost of energy eases

So far this year, the nation's battle with inflation is a draw. The United States enjoyed a zero rate of inflation for the first two months of 1983 as consumer prices declined 0.2 percent in February, offsetting a 0.2 percent rise in January, the Labor Department reports. February's decline in the consumer price index (CPI) was only the second decrease since the summer of 1965 .

The progress against inflation is a major political plus for a President who has made combating rising prices a key goal. President Reagan was quick to hail the news, saying it ''confirms once again that we are putting inflation back in its cage and that our economy is on the mend.''

But economists caution that while inflation may be down, it is far from out. ''We are expecting inflation to accelerate from its current level,'' to a 5 percent annual rate by year's end, says Robert Davis, vice-president and economist at the Harris Bank in Chicago.

The key reason for the expected increase is that ''many of the factors which accounted for the striking drop in the inflation rate are unlikely to be repeated in the second half of the year,'' explains Norman Robertson, senior vice-president and chief economist of the Mellon Bank in Pittsburgh. Food and energy are two areas in which major additional price drops are unlikely, he says.

''Unless there is no recovery, oil prices should stabilize and profit margins should start rising on a whole slew of goods,'' warns Sandra Shaber, senior economist at Chase Econometric Forecasting Associates. ''Food prices are moving up and wage rates will undoubtedly start to firm when we get into the recovery.''

In February, gasoline prices plunged 6.7 percent on the heels of reductions in the price of oil. At the same time food and housing costs held steady and costs of medical care rose. If fuel prices had not been included in calculatng the index, the overall figure would have risen 0.3 percent.

Although the inflation news is not expected to be so cheery as 1983 progresses, it will still be much better than in the recent past. Excess production capacity is making executives reluctant to raise prices. And high unemployment is keeping wages from surging and putting pressure on costs.

''We are forecasting a turnaround (in the economy) and a little more inflation,'' says Robert Eggert, publisher of Blue Chip Economic Indicators, a newsletter that surveys 46 prominent economists on their forecasts. ''But we won't be back to the kind of inflation we had in 1980 when the CPI went up 13.5 percent.''

The economists Mr. Eggert surveys predict that inflation, as measured by consumer prices, will average 4.0 percent this year. They expect prices to rise 2.3 percent for the first quarter, 4.2 percent in the second quarter, 4.9 percent in the third, and 5.1 percent in the fourth.

Barring a war in the Mideast, economists see little danger they will underestimate the nation's inflation rate. ''The one thing that might blow (the forecast) out of the water is on the downside - further good news on energy prices which could cause the inflation rate to come in even lower,'' says Donald H. Straszheim, vice-president of Wharton Econometric Forecasting Associates.

Nevertheless, there are a variety of reasons prices will not be as well behaved as they are now, forecasters say. Many think most of the recent reduction in oil prices, from $34 to $29 a barrel, has already shown up in gasoline prices. ''We are not likley to get monthly price reductions in gasoline as good as the ones we have had recently,'' says Alan Murray, vice-president of Citibank.

Food costs, which stood still in February, are expected to begin moving up again, economists say. ''The drop in food costs has probably run its course,'' says Mr. Robertson at Mellon Bank.

For example, although fruit and vegetable prices dropped 2.4 percent in February, storms along the West Coast have pushed produce prices up since then. At the wholesale level food costs have already started moving up. In February the wholesale price of consumer foods climbed at a 0.6 seasonally adjusted rate.

And the housing component of the consumer price index is likely to move up as housing prices rise along with the demand for homes. ''We see house prices and housing inflation starting to edge up,'' Wharton's Mr. Straszheim says.

About these ads
Sponsored Content by LockerDome

We want to hear, did we miss an angle we should have covered? Should we come back to this topic? Or just give us a rating for this story. We want to hear from you.

Loading...

Loading...

Loading...

Save for later

Save
Cancel

Saved ( of items)

This item has been saved to read later from any device.
Access saved items through your user name at the top of the page.

View Saved Items

OK

Failed to save

You reached the limit of 20 saved items.
Please visit following link to manage you saved items.

View Saved Items

OK

Failed to save

You have already saved this item.

View Saved Items

OK