WASHINGTON -- U.S. consumer prices, excluding energy, rose just 2.6 percent last year, matching the slowest pace of growth in three decades, the government reported yesterday.
In another report, retail sales finished 1996 on an upbeat note.
The closely watched core rate of the Labor Department's consumer price index, which doesn't count food and energy costs, tied 1994's rate as the lowest since 1965's 1.5 percent. In 1995, the CPI core rate was 3.0 percent.
"The bottom line for investors is that economic growth remains moderate and inflation continues to improve," said Brian Wesbury, chief economist at Griffin, Kubik, Stephens & Thompson Inc. in Chicago. The statistics suggest that the Federal Reserve will refrain from raising interest rates, and may even cut borrowing costs if the economy falters, Wesbury said.
Investors welcomed the news, and bonds rose for the first time in three days. The Treasury's benchmark 30-year bond, a gauge of inflation expectations, surged a full point after the reports, pushing down the yield 8 basis points to 6.76 percent. The Dow Jones industrial average rose 53.11 points to close at 6,762.29.
While most consumer costs remain well-behaved, energy prices continued to hurt Americans' wallets. In December, alone, the CPI rose 0.3 percent as rising oil and gasoline prices triggered the highest annual overall inflation rate since the Persian Gulf crisis.
What's more, for all of 1996, the consumer price index increased 3.3 percent -- the biggest gain since 1990. It was also the first time the annual figure has crossed the 3 percent mark since 1991. In 1995, consumer prices rose 2.5 percent.
Still, outside of the oil fields, refineries and service stations, other consumer prices were tame in December, as they were for all of last year. The CPI core rate rose just 0.1 percent in December, the smallest gain since August.
Retail sales, meantime, posted a better showing than a year earlier, though consumer spending during the holidays was below expectations and continued to show signs of sluggishness. Retail sales in 1996 increased 5.3 percent, up from a 4.9 percent gain during 1995, the Commerce Department said. That suggests that consumers, at least, "aren't going to go into hibernation," said Lynn Reaser, chief economist at Barnett Banks in Jacksonville, Fla.
December retail sales will help push fourth-quarter 1996 economic growth above 2.5 percent, analysts said. December sales climbed a larger-than-expected 0.6 percent after dropping a revised 0.2 percent in November. The Commerce Department first estimated a month ago that November retail sales dropped 0.4 percent.
Excluding autos and other vehicles, sales increased 0.6 percent last month after showing no change in November.
December's brisk sales pace comes as no surprise to some economists, who read recent reports of low joblessness, climbing wages and record consumer confidence levels as hints that Americans weren't about to turn stingy.
"This economy is a lot stronger than people realize," Byron Wien, managing director and U.S. investment strategist at Morgan Stanley & Co., said at the National Retail Federation's annual conference in New York. "More and more people are enjoying their money instead of passing it off to their children," according to Wien.
Pub Date: 1/15/97