Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: THURSDAY, February 21, 1991 TAG: 9102210085
SECTION: BUSINESS PAGE: B-5 EDITION: METRO
SOURCE: Associated Press
DATELINE: WASHINGTON LENGTH: Medium
A potentially more worrisome note was sounded by Federal Reserve Chairman Alan Greenspan, who told Congress an extended Persian Gulf War and persistent problems with the nation's banking system could prolong the recession.
"It would be most unwise to rule out the possibility that the recession may become more serious than already is apparent," Greenspan said in his semiannual report on monetary policy.
January's 0.4 percent climb in the Labor Department's Consumer Price Index followed surges of 0.3 percent in each of the previous two months. If sustained for the year, the January rate would produce a 1991 inflation rate of 5.5 percent - a particularly unwelcome thought in time of recession.
"We shouldn't be alarmed," advised economist Robert G. Dederick of the Northern Trust Co. in Chicago. "It's not a forerunner of a succession of bad readings."
Marilyn Schaja, an economist with Donaldson, Lufkin & Jenrette, a New York securities dealer, concurred. "The acceleration was a one-month phenomenon," she said.
Also on Wednesday, the Commerce Department said housing starts fell 12.8 percent in January to a seasonally adjusted annual rate of just 850,000 units, a level even lower than that seen during the severe 1981-82 recession. It was the 11th decline in the past 12 months.
In his testimony before the Senate Banking Committee, Greenspan said the central bank will "remain alert" to any changes in the economy as it weighs interest-rate policies.
"Greenspan seemed to be saying that he is considerably more concerned about the economy deteriorating than he is about inflation right now," said Bruce Steinberg, an economist at Merrill Lynch. "He is clearly concerned that the recession could last longer."
The Fed has dramatically lowered rates in recent months as an anti-recessionary stimulant - moves permitted by an earlier easing in inflationary pressures, Greenspan said.
His testimony was accompanied by the central bank's economic outlook report, which projected that the recession would end by midyear although unemployment would grow to a rate of between 6.5 percent and 7 percent by year's end.
But the report said the rise in consumer prices would slow to between 3.25 percent and 4 percent this year, nearly half the 6.1 percent increase in 1990.
Food and beverage costs rose 0.9 percent last month, the Labor Department said. This included a record 4.9 percent gain in the price of alcoholic beverages, "reflecting only in part the increase in federal excise taxes."
Prices of energy products fell 2.4 percent after a 0.4 percent drop in December. Energy prices skyrocketed immediately after the Iraqi invasion of Kuwait in August but have since dropped nearly to pre-invasion levels.
Excluding the volatile food and energy sectors, prices rose a 0.8 percent, double December's 0.4 percent rise.
Other notable price jumps included: out-of-town lodging, up 6.8 percent, reflecting higher winter rates in resort areas; new cars, up 1.3 percent, the steepest increase since May 1981, reflecting the end of discounts on some models and the continued introduction of higher-priced 1991 models; clothing, up 1 percent, reflecting smaller price cuts than usual in after-Christmas sales; airline fares, up 0.7 percent, bringing them 13.4 percent higher than five months ago, and medical care, up 0.6 percent.
The changes put the index for all consumer items at 134.6 in January. That means a hypothetical selection of goods that cost $100 in the 1982-84 base period would have cost $134.60 last month, up from $127.40 a year earlier.
by CNB