Consumer prices, fueled by soaring food and energy costs in the wake of a frigid December, jumped 1.1 percent last month, the biggest gain since June 1982.
Some economists were calling the January consumer price index report from the Labor Department the ”attack of the killer tomatoes,” because produce prices increased a record 10.2 percent and the cost of tomatoes soared 75.6 percent after crops were damaged by cold weather.
Nonetheless, the unexpectedly high jump in overall prices in Wednesday`s report awakened slumbering concerns about inflation.
Economists said the figures will convince the Federal Reserve that the time for easing interest rates has ended.
Although food and energy costs accounted for 60 percent of the increase, the ”core” inflation rate-excluding those two volatile categories-rose a strong 0.6 percent in January, double the 0.3 percent hike in December and the highest jump since January 1989.
Chicago prices outstripped even the national index, with a jump of 1.3 percent in January. Almost 75 percent of the increase was attributed to food and gasoline, and another 20 percent was due to gains in the housing component, which includes heating costs.
”Except for apparel, every category in the nationwide CPI went up fairly extensively,” said John Silvia, economist at Kemper Financial Services of Chicago. ”The surprising breadth of the increases suggests that core inflation is 4.5 to 5 percent.”
Fed Chairman Alan Greenspan told Congress Tuesday that the central bank had lowered its overall inflation estimate for 1990 to between 4 percent and 4.5 percent. The Bush administration is forecasting a 4.1 percent inflation rate.
”These numbers are too high for the Fed,” said Allen Sinai, chief economist at the Boston Co. ”There will be no relief on interest rates until inflation cools down, unless the economy starts to cave in.”
Sinai said that the most worrisome part of the report is that inflation in the service sector seems ”firmly entrenched.”
”Since two-thirds of our economy is in the service sector, that indicates there is not going to be any easy way to get inflation down,” he said.
But while lower interest rates no longer seem to be on the horizon, Robert Dederick, chief economist at Northern Trust Corp., doesn`t expect to see any tightening actions by the Fed that would drive rates higher, either.
”These numbers will show the Fed that inflation is a problem, but they won`t necessarily tell it that it is a worsening problem,” said Dederick. He suggested that the January figures were affected by ”beginning-of-the-year” price increases that aren`t removed in the seasonal adjustment.
”We`re not overly concerned about the numbers,” said H. Kempbell Stokes, an economist at First Chicago Corp. ”These kinds of bumps and grinds come and go. The stock and bond markets haven`t reacted much at all; they understand that most of this was energy and food.”
Analysts said the jolt in food and energy prices should ease rather quickly.
”In fact, we`re already beginning to see food and energy prices come down,” said Lawrence Chimerine, senior economic adviser for the WEFA Group in Bala Cynwyd, Pa.
”Certainly, starting with the March CPI number, we`ll see much smaller increases.”
At the White House, presidential press secretary Marlin Fitzwater called the jump ”disappointing news” but said the administration expects the core rate to decline steadily over the year.
”We are hopeful that this is a bulge that will be temporary in nature, but inflation requires eternal vigilance, and we remain on a policy of wanting steady growth with low inflation,” he said.
Overall, food prices advanced 1.8 percent while energy costs increased 5.1 percent, including a record 26.3 percent rise for fuel oil. Gasoline prices rose 7.7 percent while natural gas and electricity costs combined increased 0.3 percent.
Grocery store prices overall were up 2.9 percent, their largest increase since a 7.1 percent rise in August 1973. Meat, poultry, fish and egg prices combined were up 1.9 percent.
Dairy prices continued their upward spiral, rising 2.4 percent after increases of 2.2 percent in December, 1.7 percent in November and 1.4 percent in October. Analysts attributed the hikes to last year`s drought, which caused many farmers to slaughter milk cows.
Other categories showing price increases included entertainment costs, 0.6 percent; new vehicle prices, 0.6 percent; housing expenses, 0.7 percent, half of which was attributed to a 2 percent increase for fuel and other utilities; medical care, 0.6 percent; and transportation costs, 2.1 percent.
