Slowing economy keeps lid on costs

March 17, 1995|By New York Times News Service

WASHINGTON -- A variety of fresh government statistics released yesterday showed that an economic slowdown, becoming more pronounced by the day, is helping to moderate the sting of inflation.

Retail prices climbed three-tenths of 1 percent for the second consecutive month in February, the Labor Department reported, result that analysts considered in line with expectations that the inflation rate this year will be held to less than 3.5 percent.

Prices are rising, "but very glacially," said Brian J. Fabbri, chief economist for Paribas Capital Markets in New York.

Signs of the slowdown could be seen in other reports yesterday. Higher interest rates are exacting a particularly heavy toll on the housing market, where builders broke ground on 2.6 percent fewer homes in February than in January, the Commerce Department found. It also reported that the January results were revised to a 12 percent decline, from the 9.8 percent originally reported.

In the industrial sector, where activity remained brisk last month, a survey covering March that was published yesterday by the Federal Reserve Bank of Philadelphia indicated a sudden slowdown in the economy. Those who characterized activity as rising barely outnumbered those who thought it was declining.

Securities traders said it was this news that touched off a midmorning rally in the stock and bond markets, although bond prices later retreated.

In still another report, the Labor Department said first-time claims for unemployment insurance climbed 5,000 last week, to 343,000, with the average for the latest four weeks edging down to 339,250.

But it was the Consumer Price Index that held the biggest potential for unpleasant surprises. The February rise, though not without some unsettling aspects, was generally reassuring, economists said.

"Inflation seems to be right around 3 percent, which is taken as not enough for the Federal Reserve to do anything further" to raise interest rates, said Paul W. Boltz, an economist at T. Rowe Price.

Still, he noted that when the erratic food and energy components were excluded, the index had risen at a 4.2 percent compound annual rate in the first two months of the year. This could prove worrisome, he and others said, even taking into account that the index seems to have an upward bias in the winter.

Some important contributors to the February rise, including a 1.1 percent jump for personal and educational services, do seem unlikely to be repeated. The core index, excluding food and energy, climbed three-tenths of 1 percent last month compared with four-tenths of 1 percent in January.

Food prices staged a turnaround, to a rise of three-tenths of 1 percent from a rare January decline.

The price of apparel slumped six-tenths of 1 percent as higher-priced spring and summer merchandise arrived in amounts that were somewhat smaller than usual for February.

The housing component showed higher prices for cable television, refuse collection and furniture and bedding, while fuel oil and telephone charges declined.

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