Inflation worry fueled again Workers' pay surges

consumer prices up more than expected

March 20, 1997|By BLOOMBERG NEWS

WASHINGTON -- Inflation poked up its head in February as U.S. consumer prices rose more than expected and earnings of American workers increased at the highest rate on record, a government report yesterday showed.

The February Consumer Price Index rose 0.3 percent as higher costs for fresh vegetables and natural gas contributed to the increase, according to Department of Labor figures. A month earlier, the CPI, the government's main inflation gauge, rose only 0.1 percent.

Average weekly earnings rose 2.4 percent last month, after adjustment for inflation and seasonal variations, following a revised decline of 1.7 percent the month before, the Labor Department said.

Treasury bonds fell -- pushing interest rates higher -- after the release of the report as investors interpreted it as a sign that the Federal Reserve is likely to raise the overnight bank lending rate at its meeting next week.

February's CPI increase suggests "we might have an inflation problem," said Madis Senner, director of global fixed income at Van Eck Global in New York.

Still, consumer prices outside of food and energy remain tame. And, though the earnings increase exceeded the largest previous gain -- a 2.3 percent increase in February 1982, according to a Labor Department spokeswoman -- it was in line with analysts' expectations.

The closely watched core rate of the CPI, which excludes food and energy prices, rose 0.2 percent in February after a 0.1 percent increase in January. Analysts had expected a 0.2 percent rise in the CPI and its core rate.

The annual price trend is also tame. For the first two months of this year, consumer prices rose at a 2.3 percent annual rate, down from a 4.0 percent rate in the first two months a year ago, a government spokesman said.

The core rate rose at a 2.2 percent annual rate for the first two months, down from a 3.0 percent gain last year.

Even though a clear-cut inflation threat is lacking, the U.S. economy shows ample evidence of economic strength -- a rebound in industrial production, robust retail sales and rapid employment growth.

The latest consumer price report showed food prices rose 0.3 percent in February as the cost of fresh vegetables rose by the largest amount in almost two years. Beef, poultry and dairy costs were lower.

Energy prices also rose 0.3 percent last month as natural gas prices surged for a second month, while gasoline prices showed little change and fuel oil prices dropped.

Pub Date: 3/20/97

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