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

DATE: SATURDAY, October 16, 1993                   TAG: 9310160093
SECTION: BUSINESS                    PAGE: A6   EDITION: METRO 
SOURCE: Associated Press
DATELINE: WASHINGTON                                LENGTH: Medium

INFLATION HITS BRAKES, GIVES PUBLIC A BREAK

News of another great month for consumers - there was no increase at all in inflation during September - sparked a rally on Wall Street that drove long-term interest rates to their lowest levels ever.

The Labor Department reported Friday that its Consumer Price Index did not move up, with the price of cigarettes and other tobacco products falling by a record amount and gasoline pump prices declining for a seventh straight month.

The zero increase in consumer prices in September was the best showing since there was no change in June. It followed modest gains of 0.3 percent in August and 0.1 percent in July.

The unexpectedly good news on consumer prices kept alive a bond market rally that had begun Thursday with good news on wholesale inflation.

The yield on the government's 30-year bond, which moves in the opposite direction from its price, dropped to 5.78 percent, the lowest rate since the Treasury began regular bond auctions in 1977. It was the second straight record, after Thursday's close of 5.85 percent.

"The decade of the 1990s is a low-inflation decade, totally different from the decade of the 1980s," said Allen Sinai, chief economist at Economic Advisers Inc. in Boston. "Inflation should be low for a long, long time."

So far this year, consumer prices are rising at an annual rate of just 2.5 percent, marking the third straight year of low inflation - a performance that has not occurred since the early 1960s.

"If you take all these things together, our reading of the economy suggests a path of low inflation, low interest rates and a steady recovery," said Laura Tyson, head of the president's Council of Economic Advisers.

In other economic news Friday:

The U.S. merchandise trade deficit narrowed to $9.7 billion in August, a 6.8 percent improvement over the July imbalance. Exports jumped sharply because of higher shipments of airplanes and cars.

Output at the nation's factories, mines and utilities edged up by 0.2 percent in September. While it was the fourth consecutive monthly increase, analysts noted that factory output would have actually been flat except for a big 4.9 percent jump in car production. Since manufacturing employment continued to decline in September, the gain in output came from increased productivity, not new hires.

Business inventories in August edged up only 0.2 percent while sales soared 1.1 percent, a combination offering a positive signal for future economic growth.

Inventories - goods held on shelves and back lots - totaled a seasonally adjusted $865.7 billion, the Commerce Department said Friday.They had been down slightly in July and unchanged in June.

Meanwhile, sales jumped 1.1 percent to a seasonally adjusted $592 billion. It was the sharpest increase since December and followed a 0.7 percent drop in July.

A widely watched index of consumer sentiment, put out by the University of Michigan, showed a healthy increase to 83.1 percent in October, up from 77.9 percent in September. Analysts said that rising consumer sentiment should translate into further gains in spending as the Christmas season approaches.

by CNB