Nov 20, 2002 4 min read

By Jeannine Aversa Associated Press Writer

WASHINGTON (AP) – Consumer prices rose modestly in October, especially hitting the wallets of motorists and Americans needing medical care. But falling prices for airfares, computers and other items provided some bargains.

The government’s most closely watched inflation gauge, the Consumer Price Index, increased 0.3 percent in October from the previous month, the Labor Department reported Tuesday.

The latest reading on inflation, which matched analysts’ expectations, followed a 0.2 percent advance in September and equaled the rise posted in August.

“At this point, inflation remains restrained, and that’s good news for consumers,” said Lynn Reaser, chief economist at Banc of America Capital Management.

Separately, the Commerce Department said the nation registered a $38.03 billion trade deficit in September, the second highest on record. The red-ink ledger reflected a surge in demand for foreign cars and airplanes.

The September deficit was down $254 million from the all-time high of $38.28 billion set in August. The 0.7 percent decline in the overall deficit from month to month reflected the fact that imports dropped by 0.5 percent, mainly because the oil shipments were down sharply.

Federal Reserve Chairman Alan Greenspan told Congress last week that inflation does not currently pose a danger to the economy, which is struggling to return to full health after being knocked down by last year’s recession.

Greenspan said many companies, facing the uneven economic recovery and questioning consumers’ appetite for spending, have limited power to raise prices.

One reason the Federal Reserve had leeway to cut a key interest rate earlier this month by a bold half a percentage point to a 41-year low of 1.25 percent is because inflation has been relatively well behaved. The Fed’s Nov. 6 rate cut marked the first reduction this year and the 12th since January 2001.

Fed policy-makers hope the rate cut will spur consumer spending and motivate businesses to ramp-up investment, helping to energize economic growth.

Much of October’s consumer price increase reflected rising energy costs, which went up 1.9 percent last month after a 0.7 percent gain in September. October’s advance was led by a 3.8 percent jump in gasoline prices, the biggest increase in six months.

The gasoline price surge partly reflected rising fears of war with Iraq that kept crude-oil prices strong. While a dramatic jump in energy costs could derail the recovery, many economists do not foresee that happening.

Also pushing energy prices higher in October: a 2.9 percent rise in natural gas cost, the largest increase since January 2001.

In the first 10 months of this year, consumer prices rose at an annual rate of 2.7 percent, compared with a 1.6 percent advance for all of last year. Much of the pickup this year comes from energy costs, which went up at a rate of 14.2 percent. That’s a turnaround from 2001, when energy prices fell by 13 percent.

Food prices nudged up 0.1 percent in October, down from a 0.2 percent increase the previous month.

Excluding energy and food prices, which tend to swing widely from month to month, the “core” rate of inflation rose by 0.2 percent in October, up slightly from a 0.1 percent gain in September.

Rising medical care costs helped to push up the core inflation rate last month. Medical care prices climbed 0.6 percent in October and are up 4.8 percent from a year ago, providing a persistent source of pocketbook pain to many consumers, economists said.

Prices for hospital visits and related services shot up 0.9 percent in October, and are 9.3 percent higher than a year ago.

Yet, there were some deals to be had. Airfares dropped for the second straight month, falling 2.4 percent in October, the biggest decline since November 2001. Airfare prices are down 5.1 percent from October a year ago.

Computer prices fell 1.9 percent in October and are running a whopping 21.6 percent lower than a year ago.

Used car and truck prices last month dropped 1.6 percent, prices for cigarettes and other tobacco products declined 3.1 percent, shoe prices dipped 0.3 percent and prices for telephone service inched down by 0.2 percent.

“Inflation is neither too cold, nor too hot, which should make Goldilocks happy,” said economist Joel Naroff of Naroff Economic Advisors.

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On the Net:

CPI http://www.bls.gov/

Trade: http://www.commerce.gov/