000241 Consumer Prices Rise Modestly

Washington - Consumer prices edged up 0.2% in January as the biggest drop in clothing prices in nearly 11 years helped offset rising costs for fuel oil, gasoline and other energy products, the government said.

The modest advance in the Labor Department's Consumer Price Index, the most closely watched inflation gauge, was slightly less than the 0.3% increase many analysts were expecting and marked four months in a row in which inflation stood at 0.2%.

A 1.1% decline in clothing prices -- the largest drop since February 1989, reflecting post-holiday discounting by retailers to make room for new merchandise -- helped offset a big 1% jump in energy prices and rising costs for other products.

Outside the volatile energy and food categories, the “core” rate of inflation rose 0.2% last month, matching many analysts' predictions. That followed a slim 0.1% rise in the core in December.

The report comes one day after the government said inflation at the wholesale level was unchanged in January and that core wholesales prices, excluding energy and food, actually fell 0.2%.

Both inflation reports suggest that outside the burst in energy costs, most other prices remain in check. But some economists said the CPI report could set the stage for bigger price increases in the future. Among other things, they are worried that rising energy costs will push up other prices. “The tame headline number hides some real pressures on consumer prices,” said economist Joel Naroff of Naroff Economic Advisors.

Wall Street, however, appeared to dwell on Federal Reserve Chairman Alan Greenspan's signal Thursday that interest rates will be raised again. The Dow Jones industrial average had lost more than 200 points by early afternoon. But inflation-sensitive bonds rallied on the CPI news. Bond prices rose as the yields on 30-year Treasury bonds fell to 6.18% from 6.22%.

In another report, the Commerce Department said the 1999 trade deficit was up a sharp 65.1% from the $164.3 billion of a year earlier.

Overall, the trade deficit for last year surged to an all-time high of $271.3 billion. Deficits with Japan, China, Canada, Mexico and the European Union all set records.

The Federal Reserve has bumped up interest rates four times since June to slow the red-hot economy and keep inflation under control.

Greenspan, in his twice-a-year report on the economy to Congress on Thursday, said inflation remains a threat to the economic good times many Americans are enjoying. His concern: the tight labor market will lead to wage gains that not blunted by other forces could lead to a sharp run-up in prices.

Most analysts widely expect the Fed to boost interest rates again on March 21 and believed Greenspan's remarks appeared to support their predications of a series of rate increases this year.

The 1% rise in overall energy prices last month was led by a 7.9% gain in fuel oil prices, the steepest increase in four years. Gasoline prices rose 1.6% and natural gas prices went up 1.4%.

Production limits by oil-producing nations and increased demand because of the cold weather accounted for the increase in energy prices.

Crude oil prices on Monday moved past the $30-a-barrel mark for the first time since the eve of the Persian Gulf War nine years ago as production cuts adopted by leading producers squeezed world supply.

A rebound in energy prices, which had fallen sharply in 1998 as the Asian financial crisis severely dampened global demand, was the main factor in pushing up overall consumer prices last year by 2.7%, the biggest increase since 1996.

Despite the increase in energy costs, airfares actually fell by 1.4% last month.

Meanwhile, food prices, fell by 0.1% in January, the best showing since March. Falling prices for vegetables, fruits, dairy products and pork more than offset rising prices for poultry and beef.

Elsewhere in the report, new car prices fell by 0.3% in January, the best performance in almost a year, and prescription drug prices rose 0.2%, the smallest increase since November 1998. Tobacco prices, including cigarettes, rose 1.6%, the biggest jump in four months.

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