Gulf crisis spurs jump in prices Rise in trade deficit biggest in 8 years

September 19, 1990|By Los Angeles Times

WASHINGTON -- The pace of inflation accelerated sharply last month, the government reported yesterday, providing the first taste of what economists warn will be several more months of higher-than-usual inflation figures stemming from the Persian Gulf crisis.

The Department of Labor's monthly report showed that consumer prices jumped 0.8 percent in August, double the increase that was posted in July and their largest monthly surge since January. Energy prices surged 4.3 percent during the period, the biggest since January, when they rose 5.1 percent.

In a separate dose of bad news, the Department of Commerce reported that, largely because of a sharp drop in exports, the nation's foreign trade deficit mushroomed to $9.3 billion in July, its highest level since January, reversing a decline to $5.3 billion in June. The increase was the sharpest since August 1982.

Allen Sinai, economist for the Boston Co. Economic Advisers, Inc., a New York economic consulting group, said that taken together, the reports raised disturbing memories of 1970s-style stagflation -- continuing high inflation combined with very slow growth.

"Stagflation is now besetting the U.S. economy," Mr. Sinai said. "It looks more and more that post-Iraq, the recession [that] the economy has moved into may be worse and inflation may be higher.

Some analysts had hoped that the export boom that was evident earlier this year would keep the economy out of recession, but the July trade report may -- that hope. The document said that exports, which hit a record $34.3 billion in June, fell 6.4 percent in July $32.0 billion.

Imports jumped 4.5 percent to $41.4 billion.

At the same time, the speedup in consumer prices -- coming on the heels of a 1.3 percent jump in wholesale prices during August -- brings the economy to the brink of double-digit inflation, an almost sure prescription for a recession.

The 4.3 percent increase in energy prices was reflected throughout that sector of the economy. Gasoline prices jumped 7.6 percent, while prices of fuel oil surged by 15.4 percent. Even sharper increases are expected in coming months.

More ominous, economists said, was the fact that higher inflation was also reported in parts of the economy not directly by energy

prices, such as medical care, many services and the cost of shelter -- up 0.9 percent, 0.7 percent and 0.7 percent, respectively.

Mr. Sinai, in particular, was pessimistic. "To go into an energy inflation with a 5.5 percent annual inflation rate underlying that suggests we'll get to 6 percent or 7 percent during the next year," he said. "We could very well get double-digit annual rates in the next few months."

Giulio Martini, an economist with Sanford C. Bernstein & Co., another economic consulting firm, agreed. "This is resolutely bearish news," he said. "There's a real danger we are looking at a situation that is more and more like 1979."

"These trade figure raise a concern about a bigger recession than we feared," Mr. Sinai said. "Trade had been expected to be a prop . . . while non-oil imports were expected to decline. But this report suggests the opposite happened."

Secretary of Commerce Robert A. Mosbacher Sr. warned in a statement that the recent rise in oil prices is likely to add about $2 billion a month to the trade deficit.

The overall drop in exports was pervasive. Shipments of U.S.-made capital goods fell $700 million over the month, including $400 million in aircraft alone. Exports of autos and parts declined by $400 million.

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