Gas Tax Sends Consumer Prices Up 0.4%

WASHINGTON —  An increase in the federal tax on gasoline helped boost consumer prices by 0.4% in October, but economists said it was a one-month jolt and inflation should remain low through next year.

The rise reported Wednesday in the Labor Department’s consumer price index translates into a 5.1% annual rate and was the largest in six months.

But it followed no change in September and, for the year so far, inflation is running at an annual rate of 2.8%, compared to 2.9% for all of last year.

Consumer prices in the greater Los Angeles area rose 0.5% in October. The federal gasoline taxes were the primary reason, but higher grocery, housing, medical and auto insurance costs also contributed, said Sam Hirabayashi, regional commissioner of the department’s Bureau of Labor Statistics.

Wednesday’s report flustered financial markets and sent interest rates creeping higher, but most private economists said they do not believe inflation will soon bolt out of the subdued range it has occupied for nearly three years.

Analysts surveyed this month predicted 3% inflation on average next year, according to Blue Chip Economic Indicators of Sedona, Ariz.

“Inflation is very well contained . . . and is unlikely to be a problem going forward,” said economist Laurence H. Meyer, who heads a consulting firm in St. Louis.

Meyer said the operating rate at industrial concerns, at 81.6%, remains well below the level that could cause production bottlenecks, and that the national unemployment rate, at 6.8% last month, is producing little upward pressure on wages.

Reinforcing that point, the Labor Department said new applications for unemployment benefits increased by 14,000 last week to 354,000, the highest level in nearly four months.

Economists had anticipated the 0.4% rise in consumer prices because a 4.3-cent-a-gallon gasoline tax increase took effect Oct. 1. It helped push prices at the pump up 4.5%, the biggest rise in three years and the first in eight months.

“I would label it the first major price report influenced by Clinton economic policies,” said economist David Jones of Aubrey G. Lanston & Co. “You could almost call it a ‘Clinton CPI’ because the major factor pushing prices higher was the gasoline tax he imposed.”

Without the gasoline increase, consumer prices overall would have risen a more moderate 0.3% in October. Still, gasoline prices were 16.4% below the peak reached in November, 1990, during the Persian Gulf War.

Energy prices overall rose 1.9% last month. The cost of fuel oil and natural gas declined, but the cost of electricity increased.

Inflation was also driven higher by a 0.5% rise in food prices, the worst in 14 months. Fresh fruit prices jumped 5% last month, including a 9.3% increase in the cost of bananas and a 6.7% rise in oranges. The prices of beef, pork, poultry, fish and eggs also rose.

Excluding the volatile food and energy sectors, prices rose 0.3%. Analysts believe this so-called core rate offers a better look at underlying inflationary pressures. It’s been rising at a 3.1% annual rate this year, compared to 3.3% during all of last year.

Separately, the department said Americans’ inflation-adjusted weekly earnings rose 0.3% in October, partly making up a 0.8% drop the month before.

The latest increase in consumer prices sharply contrasts with a report a day earlier showing prices paid to producers, such as farmers and factories, down 0.2%. However, that measure did not include the gasoline tax.

Consumer Prices

Percent change in U.S. consumer price index from previous month, seasonally adjusted: Oct. ‘93: +0.4%

Source: U.S. Department of Labor