Thursday’s favorable report on retail inflation only deepens the mystery of the serendipitous U.S. economy this fall, particularly in light of a separate report showing an extraordinarily low level of jobless Americans.
The consumer price index for September rose just 0.2 percent for the third consecutive month, according to the Labor Department. That is a surprisingly benign report given the news last Friday that prices at the wholesale level rose 0.5 percent last month.
Most economists had expected the price increases at the producer level to filter through to consumer prices. But at least so far, they have not. That inflation has remained so low–coupled with low unemployment levels–well into the seventh year of an economic expansion continues to baffle many economists, who believe that tight labor markets should have begun to push up wages, and therefore prices, by now.
So far this year, consumer prices have risen at an annual rate of just 1.8 percent, compared with 3.3 percent for all of 1996.
“This confirms we are continuing to experience the best possible scenarios–strong growth with little or no evidence of inflation,” said Edward Yardeni, chief economist for Deutsche Morgan Grenfell in New York.
In fact, Yardeni said Thursday’s report contains evidence of “some powerful disinflationary trends in goods and services.”
This good news was initially greeted positively by Wall Street, but stock prices later dropped sharply because of some negative earnings surprises and jitters over a brewing trade dispute with Japan. The Dow Jones industrial average dropped 119.10, to close at 7938.88.
Also causing some worry among investors was a separate report on initial jobless claims. The Labor Department said first-time filings for unemployment benefits last week rose by 2,000, to 306,000, the fifth week in a row in which claims were less than 310,000.
It was the first time since late 1988 that the labor market has been this strong for as long. That suggests to some that more workers might be able to demand and receive high wages, which might trigger inflation down the road.
For the time being, though, inflation remains only a distant threat.
Excluding food and energy costs, which tend to gyrate wildly from month to month, the core rate of inflation also showed a 0.2 percent rise in September. So far this year, the core rate has increased at a 2.2 percent rate, compared with 2.6 percent for 1996.
The low inflation report means that the nation’s 44 million Social Security recipients will receive a 2.1 percent increase–the CPI over the federal fiscal year, which ended Sept. 30–in their 1998 checks. That’s the lowest cost-of-living adjustment in a decade.
Among the biggest price gainers in the CPI in September were airline ticket prices–up 2.1 percent following a drop of 4.7 percent in August. Air fares have been quite volatile, however, because of the prevalence of “super-saver” discount fares. For the last 12 months, air fares have risen 1 percent.
Other big gainers included gasoline–up 1.8 percent–and other energy prices–up 1.3 percent. Tobacco and smoking products also jumped 1.4 percent.
Medical care costs continued to rise moderately, posting a 0.2 percent gain in September, the same as in August. Entertainment prices declined 0.2 percent in the month after a 0.4 percent gain in August.
The Commerce Department also said business inventories rose less than expected in August, up just 0.2 percent.
