Inflation gauge rises mainly due to higher energy costs

Journal Record, The (Oklahoma City), Nov 17, 2000

WASHINGTON (AP) -- After a stormy September, inflation at the consumer level calmed in October, tempered by declining prices for gasoline and tobacco and the biggest drop in airline fares in 16 months.

The Labor Department reported Thursday that its Consumer Price Index, the government's most closely watched inflation gauge, rose a seasonally adjusted 0.2 percent last month, following a sharp 0.5 percent gain.

Surging energy costs accounted for most of the September increase, but those prices were much more subdued in October, helping to restrain overall consumer prices.

While economists were heartened by the inflation news and believe energy prices will continue to moderate, the report may not offer much solace to consumers likely to face big heating bills this winter.

"For households, they're still looking at higher costs. Their monthly expenses are up from a year ago, mostly due to higher energy prices," said Stephen Cecchetti, economics professor at Ohio State University.

Still, economists said the latest reading on inflation justified a decision Wednesday by Federal Reserve Chairman Alan Greenspan and his colleagues to leave short-term interest rates unchanged while keeping close watch on energy prices. The concern is that rising energy prices could lead to higher prices for other products, pushing overall inflation higher.

"You can bet that Captain Alan Greenspan would rather navigate the USS Economy through calmer waters in coming months," said Richard Yamarone, an economist with Argus Research.

"There is growing evidence of an economic slowdown, however, the concerns of higher-priced energy cloud the sky."

The Fed has raised interest rates six times since June 1999 with the goal of bringing about a "soft landing" -- slowing the economy enough to keep inflation in check but not so much as to cause a recession.

In a second government report Thursday, new claims for state unemployment insurance fell last week by 20,000 to 326,000. Even with the drop, claims are at a level suggesting economic growth is moderating.

The inflation report also showed that excluding the volatile energy and food sectors, the "core" rate of inflation rose 0.2 percent in October, down slightly from a 0.3 percent rise in September.

For the first 10 months of this year, consumer prices rose at an annual rate of 3.6 percent, a sharp increase over the 2.7 percent rise in 1999. The pickup has come from soaring energy prices.