Inflation on pace for smallest rise in 12 years Dropping fuel prices offset increases in costs of housing and food

The economy

December 16, 1998|By BLOOMBERG NEWS

WASHINGTON -- U.S. inflation is on track for its smallest yearly increase in 12 years and companies are keeping inventories lean, suggesting that manufacturing may pick up next year, government reports yesterday showed. The Consumer Price Index rose 0.2 percent in November, matching October's rise, as dropping fuel prices offset increases in the cost of housing, food and medical care, Labor Department figures showed.

That put the CPI on course for a 1.6 percent rise for all of 1998 -- below last year's 1.7 percent increase and the lowest since a 1.1 percent increase in 1986.

A separate report showed businesses added inventories at a slower pace in October than a month earlier as robust retail sales caused retailers to pull merchandise out of warehouses to satisfy demand.

Inventories rose 0.3 percent in October after increasing 0.6 percent in September, Commerce Department figures showed. Total business sales rose.

"Low inflation is just part of this best-of-all-worlds scenario in the U.S.," said William Cheney, chief economist at John Hancock Mutual Life Insurance Co. in Boston. "Your income looks better and better, and it contributes to real purchasing power. We're probably going to have a merry Christmas" and strong sales early next year.

The inflation report showed that energy prices, which account for about a tenth of the CPI index, were unchanged during November from October as a drop in gasoline and fuel oil costs offset unexpected increases in natural gas and electricity.

About 55 percent of the CPI covers prices consumers pay for services, ranging from doctor visits to airline tickets.

The price of goods such as food and autos accounts for the rest of the index.

Health care costs rose 0.2 percent and prescription drug prices climbed 0.3 percent last month. The cost of medical care is one area of concern for the inflation outlook. "You've had a pretty dramatic acceleration in the CPI for medical care prices over the past year," noted Patrick Dimick, an economist at Warburg Dillon Read in Greenwich, Conn.

Economists expect overall inflation to stay tame, especially since U.S. consumers have become accustomed to waiting for price declines before they make purchases. Wal-Mart Stores Inc., Dayton Hudson Corp.'s Target and other discounters attracted shoppers seeking bargains on brand-name household goods JTC and apparel over the past weekend, keeping U.S. retail sales on track to rise at least 4 percent this holiday season.

Pub Date: 12/16/98

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