Consumer Prices Up Modestly; Housing Dips

October 19, 2004

By Jeannine Aversa
The Associated Press

WASHINGTON - Consumer prices rose by a modest 0.2 percent in September as a decline in prices for new cars and airline fares helped to temper a rise in costs for medical care, gasoline and fuel oil.

The rise in the Consumer Prices Index, the government's most closely watched inflation barometer, came after prices edged up by 0.1 percent in August, the Labor Department reported Tuesday.

Excluding energy and food prices, which can swing widely from month to month, "core" prices rose by 0.3 percent in September, up from a 0.1 percent gain in August and the largest increase April, a worrisome sign. A sharp increase in lodging prices was a main factor in the rise in core prices last month.

The overall CPI figure showing a 0.2 percent increase in September matched economists' expectations. The 0.3 percent rise in core prices, however, was slightly bigger than the 0.2 percent increase some economists were forecasting.

Meanwhile, the government also reported that people on Social Security will get a 2.7 percent increase - an extra $25, on average - in their monthly checks next year starting next January. The cost-of-living adjustment was announced by the Social Security Administration.

The latest increase was the largest since benefits rose by 3.5 percent in 2001. A 2.1 percent increase went into effect at the beginning of this year.

In another report, housing construction fell by 6 percent in September to a seasonally adjusted annual rate of 1.898 million units, the Commerce Department said. The decline - steeper than analysts were expecting - followed a 1.8 percent rise in housing activity in August, which turned out to be stronger than initially estimated.

The newest snapshot of the economy comes as Election Day draws closer. President Bush and his Democratic opponent, John Kerry, have divergent views of how the economy and the job market are faring. Those are matters that will be on voters' minds when they go to the polls.

Federal Reserve Chairman Alan Greenspan, in a speech last week, said that the economy will be able to weather surging oil prices, without suffering a recession - unlike the 1970s and early 1980s, when oil shocks pushed the economy into a series of downturns.

Oil prices, which recently hit a record high of just shy of $55 a barrel, are hovering around the $54 a barrel range.

The Fed, in an effort to make sure inflation doesn't pose a risk to the economy, has boosted short-term interest rates three times this year. Some economists believe the Fed will raise rates for a fourth time on Nov. 10. A few, however, believe the Fed might stand pat at that time and reassess the situation at its last meeting of the year in December.

In Tuesday's report, all energy prices actually dropped by 0.4 percent in September, following a 0.3 percent decline. Natural gas prices fell sharply and electricity prices were flat last month. That helped to offset price increases for fuel oil and gasoline.

Food prices, meanwhile, were flat in September, after rising by 0.1 percent in August.

Elsewhere in the report: new car prices dipped by 0.2 percent in September and airfare costs dropped 1.6 percent. Clothing costs were flat.

Medical care costs rose by 0.3 percent and education costs rose by 0.6 percent in September. Lodging costs jumped by 2.9 percent in September.

In the first nine months of this year, overall consumer prices are rising at a 3.5 percent annual rate, compared with a 1.9 percent increase for all of 2003. Much of the pickup reflects higher costs for energy products.

Source: The Associated Press

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