- The Washington Times - Saturday, October 20, 2001


A temporary jump in gasoline costs pushed consumer prices higher in September, but lower energy costs since then, along with the slumping economy, should keep inflation subdued.

The Consumer Price Index, a closely watched inflation gauge, climbed 0.4 percent last month, after a tiny, 0.1 percent advance in August, the Labor Department reported yesterday.

In another economic report, the Commerce Department said that America's trade deficit shrank to $27.1 billion in August, the lowest level in 19 months, as the ailing economy depressed Americans' demand for foreign-made computers, televisions and other consumer goods.

Virtually all of September's rise in the Consumer Price Index was fueled by a sharp increase in the price of energy products, especially gasoline, which rose by the largest amount in 15 months. Those prices went up immediately after the Sept. 11 terror attacks but then quickly retreated, economists said.

"With the economy faltering, inflation is not a threat especially since the energy price jump has already completely unwound," said Joel Naroff of Naroff Economic Advisors. "There is very little reason to worry about inflation rearing its ugly head."

The surge in consumer prices added to the tone of caution on Wall Street yesterday.

The Dow Jones Industrial Average rose 40.89 to 9,204.11, while the broader market was also higher. The Nasdaq Composite Index rose 18.58 to 1,671.30, and the Standard & Poor's 500 index gained 4.87 to 1,073.48.

Yesterday was a turnaround from the rest of the week, when the market largely shrugged off better-than-expected earnings. Despite stumbling a bit, the Dow is still 11.7 percent above the lows for 2001 set last month. The Nasdaq is up 17.4 percent and the S&P 500 is up about 11.1 percent.

Given the tame inflation environment, the nation's Social Security recipients will get a smaller, 2.6 percent cost-of-living increase in their monthly checks next year, the government said. That will mean an extra $22 a month for the average retiree. Last year, they got a 3.5 percent boost, a nine-year high.

The "core" rate of inflation, which excludes energy and food prices, rose in September for the third month in a row by just 0.2 percent, suggesting that most other prices are well-controlled.

Because the economy is so weak, companies are likely to discount their merchandise and services even more to try and boost sales, something that would bode well for keeping inflation under wraps, analysts said.

To jolt economic growth, the Federal Reserve has cut interest rates nine times this year, with two of those reductions coming after the attacks. One of the reasons the Fed has been able to act so aggressively is because inflation has not been a problem.

Economists said there was nothing in yesterday's report that would deter the Fed from cutting interest rates at its next meeting on Nov. 6. Many economists are looking for a quarter-point reduction, though a bigger half-point cut hasn't been ruled out.

The economy grew by a scant 0.3 percent rate in the second quarter and many analysts predict economic output in both the third and fourth quarters will decline, fitting a common definition of a recession.

Seeking to bolster confidence that has been badly shaken since the attacks, Treasury Secretary Paul H. O'Neill expressed optimism yesterday that the ailing economy would eventually bounce back.

"We are seeing concrete signs that we are beginning to regain our economic footing," Mr. O'Neill said after a meeting with business people at the White House. "Consumers are returning to the stores, airline usage is increasing and there are buyers again for big-ticket goods such as automobiles."

But two days earlier, Federal Reserve Chairman Alan Greenspan delivered a more somber assessment, telling Congress that the economy's recovery from the attacks has been uneven.

While economists are hopeful that prices will remain stable, some do worry about price spikes, especially for energy products.

After falling by 1.9 percent in August, energy prices soared by 2.6 percent in September, largely reflecting a surge in gasoline prices right after the attacks, economists said.

So far this year, consumer prices rose at an annual rate of 2.8 percent, compared with an increase of 3.4 percent for all of 2000.

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