Consumer price inflation accelerated to an annual rate of 5.9 percent in October, spurred by increased house costs, but the increase still left the inflation rate for the year so far at its lowest level for six years, the government reported yesterday.
But there was also more evidence yesterday that the recession tightened its grip in October. New orders for durable goods dropped 4.9 percent last month, the sharpest one-month decline since October 1981, the Commerce Department said.
This suggests that further declines in production are likely, as manufacturers cut back their output in response to reduced orders. New shipments from durable goods manufacturers' also dropped last month, by 5.7 percent, Commerce reported.
The speedup in inflation last month was largely attributable to rising house prices, sharply higher costs for home fuel and increased rents, the Labor Department report said. Gasoline prices also advanced rapidly, measuring 0.9 percent for the month after seasonal adjustment. Labor officials cautioned, however, that the housing component in the Consumer Price Index has "some problems."
The monthly rise in the CPI in October was 0.5 percent, after seasonal adjustment, compared with increases of 0.2 percent in September and 0.3 percent in August. It was bigger than many analysts had expected, but Labor officials cautioned that there are "some problems" with the housing component of the index.
So far this year, consumer prices have risen at an annual rate of 4.9 percent, the Labor Department said. Commerce Secretary Malcolm Baldrige predicted yesterday that the CPI increase by the end of the year would be in the range of 5 percent. This is sharply lower than the 8.9 percent recorded for all of 1981 and 12.4 percent inflation rate in 1980. The annual rise for this year would be the lowest since 1976, when prices climbed by 4.8 percent.
Baldrige does not see a further decline in inflation next year. However, he said "we feel quite confident" that the CPI will register an increase of between 5 percent and 6 percent and not more.
President Reagan has described the substantial decline in inflation since he took office as one of the main achievements of his economic program. However, this has come largely at the cost of a deep and prolonged recession that has driven unemployment up to a post-World War II record of 10.4 percent.
Real earnings, after taking account of inflation, dropped sharply in October, according to a separate report published yesterday by the Bureau of Labor Statistics. Real average weekly earnings fell by 0.5 percent from September, after seasonal adjustment, as a 0.4 percent rise in earnings was more than offset by a cut of 0.3 percent in average hours worked and the 0.5 percent increase in consumer prices.
Over the past year, real average weekly earnings were down by 1.3 percent.
Yesterday's report from durable goods manufacturers showed that new orders and shipments were down last month in most industries. New orders for capital equipment in non-defense industries were flat, the Commerce report said. So far this year new orders have been 11.4 percent below the same months last year, while shipments have been down by 8.2 percent in today's dollars.
Administration officials expect only "moderate" growth next year, which will likely leave unemployment still above 9 percent. Treasury Secretary Donald T. Regan told reporters yesterday that "economists tell me" the best that "we can hope for is somewhere between 3 and 4 percent growth in 1984."
Recent interest rate declines will aid the recovery, Baldrige said, adding that the high level was responsible for "delaying the recovery," which he originally thought would come in the middle of this year.
Interest rates have now come down significantly since the mid-summer, as the Federal Reserve has eased credit conditions and lowered its discount rate in six half-point steps. The key M1 measure of the money supply, which includes cash in circulation and checking accounts at financial institutions, has grown rapidly since July, but the Fed has not tried to rein in this expansion.
Reagan's chief economist, Martin Feldstein, said this week that he thought the spurt in M1 did not represent any real easing in monetary policy and was quite consistent with the Fed's overall policy of strict control of the money supply. Lower inflation and interest rates have made people more willing to keep their money in cash and bank accounts that do not earn interest, he said, so there has been a rise in the amount of M1 needed to support a given amount of spending in the economy.
Some administration officials have reportedly complained recently that the Fed was in danger of reigniting inflation by allowing too fast an expansion in the money supply. However, Feldstein indicated such criticism was unwarranted, and said the Federal Reserve should not try to bring M1 back within target.
The Consumer Price Index stood at 294.1 in October, with 1967 as the base of 100. That means that a basket of goods which cost $10 in 1967 would have cost $29.41 last month.
The BLS also calculates a consumer price measure which uses a different housing component. This measure, which will replace the present CPI next year, rose by 0.6 percent in October and 5.6 percent in the year ending last month, yesterday's report said.
Within the overall CPI last month: housing costs were up 0.4 percent, following a decline of 0.2 percent in September; transportation costs climbed 0.6 percent; food, 0.2 percent; medical care, 0.8 percent; clothing, 0.2 percent; and entertainment, 1.0 percent.