
                         Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: WEDNESDAY, March 20, 1991                   TAG: 9103200141
SECTION: BUSINESS                    PAGE: A-9   EDITION: METRO 
SOURCE: Associated Press
DATELINE: WASHINGTON                                LENGTH: Medium

PRICES EDGE HIGHER/ DROP IN ENERGY COSTS CUTS MAIN FUEL LINE TO INFLATION

Consumer prices, benefiting from the biggest monthly decline in gasoline prices in almost five years, edged up a scant 0.2 percent in February, the Labor Department said Tuesday.

While the Bush administration hailed the report as one harbinger of a quick end to the recession, Wall Street was decidedly less upbeat. Stock prices skidded on worries that the underlying inflation rate, not counting food and energy, was stuck at a disappointingly high level.

The 0.2 percent rise in the Consumer Price Index was the smallest in nine months. If prices continued to rise at February's rate, they would add up to an annual inflation rate of just 2.7 percent, far below last year's 6.1 percent increase.

Analysts said they were concerned that any recovery could be aborted if the Federal Reserve is forced to reverse course and begin raising interest rates to fight entrenched inflationary pressures.

"The core inflation rate is a depressing number. It is too big to just dismiss or ignore," said Robert Brusca, chief financial economist with Nikko Securities. "This number is going to be a problem for the Fed."

While economists said they were still expecting inflation to rise by less than 4 percent this year, they said any further Fed easing will be put on hold until the central bank sees the underlying inflation rate come down.

"Before the Fed can ease any more, it has got to see better inflation numbers," said Bruce Steinberg, an economist with Merrill Lynch, who predicted that the core inflation rate would start to come down next month.

February's good news on inflation was mostly due to a fourth consecutive monthly drop in energy prices, which fell 4 percent - led by a 7.4 percent plunge in gasoline prices, the biggest one-month drop since April 1986.

Food costs also were down 0.2 percent as fruit prices retreated following a freeze-related rise the month before.

Discounting the volatile food and energy sectors, inflation rose a troubling 0.7 percent after a 0.8 percent increase in the so-called core inflation rate in January.

Driving the price rise were the new postage rates; the cost of mailing a letter rose by 16 percent last month. Prices of women's clothing, alcoholic beverages, new cars and hotel and motel rooms were up sharply as well.

The changes left the CPI at 134.8, compared to 128 a year ago. That means a hypothetical basket of goods and services would have cost $134.80 last month, up from $128 a year ago and $100 in the base period of 1982-84.

by CNB