Economists See A New Surge In Inflation

Despite interest-rate hikes, the consumer and producer price indexes are creeping upward

THE United States inflation rate is beginning to worry economists. They now see a bulge in prices, despite the efforts of the Federal Reserve Board to rein in the economy.

Recent price trends indicate that the nation's chief measures of inflation - the Consumer Price Index (CPI) and the Producer Price Index (PPI) - are starting to expand, compared with last year. Economists believe that inflation, as measured by a broader gauge, consumer prices, is moving upwards at a 3.5 percent annual rate, compared with the 2.6 percent annual rate recorded last year.

``Inflation is starting to creep upwards,'' says Paul Kasriel, an economist at Northern Trust Company in Chicago.

In terms of the CPI, the creeping was fairly restrained in August. Yesterday, the government reported that the CPI, a broad measure of inflation, grew a moderate 0.3 percent, as falling clothing prices offset higher energy and food prices.

Despite the moderate rise in August prices, though, economists have started to track steadily rising prices. For example, in August, the CPI was up 2.9 percent compared with last year. In July, it was up 2.8 percent compared with 1993. And, in June, the change was 2.3 percent.

``This is not to say inflation is out of control, but it is rising,'' says Veronika White, an economist at Fidelity Bancorporation in Philadelphia.

The troubling inflation trend is likely to result in a fierce debate when the Federal Reserve meets on Sept. 27. So far this year, the Fed has boosted interest rates six times. However, many economists don't expect the Fed to act until it gets more data.

``I don't think the Fed will act again until November,'' Ms. White says.

Michael Keran, chief economist with Prudential Economics, maintains that slack in the economy will bring inflation back down again next year to a 2.5 percent rate after a bulge over the next few months.

Economists expect the Fed will be closely watching the retail-sales numbers that will be released today.

``I think the Fed will be worried if consumer demand remains strong,'' says Peter D'Antonio, a senior economist at Citibank. Even more important, he says, will be the October sales report when back-to-school sales are reported. ``If there is another strong reading, it will be cause for concern,'' he states.

The August PPI numbers released on Friday were larger than most economists had expected. Behind the rise was a jump of 1.7 percent in energy prices. A significant portion of the increase was related to a 6.8 percent increase in gasoline prices.

``Global demand for energy is rising,'' says Mr. Kasriel.

Led by a surge in beef and coffee prices, food prices also shot up 0.7 percent. However, Donald Straszheim, chief economist for Merrill Lynch & Co., predicts that food prices will slow in September. The early outlook for the PPI this month is good, he says.

Better inflation news would be welcome for Ruth Stafford, treasurer of the Kiva Container Corporation in Phoenix. In October, Kiva expects a 10 percent to 12 percent price increase in liner board, the raw material used in cardboard containers. The price hike comes on top of the 25 percent cost increase seen since last October.

``Our costs are up dramatically,'' says Ms. Stafford, who has only been able to pass on part of the increase. With the price hikes, for example, Kiva has had to reprint its catalog four times. Each printing costs $5,000.

The Will-Bert Company, of Orville, Ohio, which produces products for the heavy-equipment industry, has also seen a steady stream of price increases on steel, says Harry Featherstone, the chief executive officer.

``I've heard they [the steel companies] are going to try to raise prices again,'' he adds.

The price hikes, however, have not hurt his business so far, Mr. Featherstone says. ``We've either canceled orders, passed on the increases, or compensated somehow,'' he explains.

But while some material-intensive businesses are feeling inflation pressures, inflation fires have not been as bad for labor-intensive companies. At the Superior Technical Ceramics Corporation, a manufacturer of industrial ceramics in St. Albans, Vt., vice president Earlyn Church reports that wage increases for the professional staff will be about 4 percent this year.

``Everyone sees raises, and we stay deliberately ahead of the cost of living,'' she says.