Consumer Prices Jump 0.3% as Factory Production Falls

Consumer prices rose at the fastest clip in five months in October while factory output contracted for the first time in half a year in another sign the economy is losing steam, the government said Wednesday.

Economists downplayed the larger-than-expected 0.3% rise in the Labor Department’s consumer price index, saying it was not the start of a trend and that inflation remains well contained. It followed a 0.1% rise in September.

Energy prices rebounded for the first time in four months, climbing 0.4%. Rising costs for airline tickets, housing and clothing also fueled the CPI’s advance, the biggest since May.

At the same time, production by the nation’s mines, factories and utilities dropped 0.3% in October after a 0.1% rise in September, the Federal Reserve Board said.

A strike at aircraft manufacturer Boeing Co. hurt output, but so did reduced assembly rates for new cars and lower production of construction supplies. Production would have been down only 0.1% without the effects of that strike.

“These numbers suggest inflation is not a problem and that the economy is weakening,” Chemical Bank’s Irwin Kellner said.

Federal Reserve Board policy-makers, who met Wednesday, decided to leave interest rates steady for now despite growing signs of an economic slowdown. Analysts said the central bank did not want to change policy given such economic crosscurrents and the uncertainty over how the budget battle in Washington will be resolved.

Despite weakness in manufacturing and consumer spending evidenced in October, analysts said the central bank may well sit on the sidelines until 1996.

“Unless the economy does as badly in November and December as it did in October, we have closed the book on any further Fed easing for this year,” said Allen Sinai, chief global economist at Lehman Brothers in New York. “The budget impasse in Washington gives the Fed every reason to wait.”

Still, Fed critics said the weakness in manufacturing and consumer spending argued that the economy was threatening to falter after a rebound in the summer.

“We haven’t even recovered from the last recession and now the national economy is weakening again,” said Rep. Pete Stark (D-Hayward). “We need the boost of an interest rate cut in time to rejuvenate sales for the holiday season.”

Jerry Jasinowski, president of the National Assn. of Manufacturers, called recent economic statistics “rather bleak” and said the Fed must cut rates further.

Many private economists dismissed the 0.3% rise in consumer prices in October as a temporary spike after four months in which retail prices were rising only 0.1% or 0.2% per month.

The CPI--the last Labor Department economic report until the federal government reopens--showed that food prices rose 0.3% last month after rising 0.5% in September.

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Consumer Prices

Percent change, month to month, seasonally adjusted:

Oct. 1995: 0.3%

Source: Bureau of Labor Statistics