Consumer prices shot up 0.8 percent last month, double the July rate, as the leading edge of the oil price shock worked its way through the economy, the Labor Department reported yesterday.
Except for last January's 1 percent increase, it was the largest monthly rise in eight years. Furthermore, analysts said, it all but assures that the consumer price index will increase more than 6 percent this year.
While a 7.6 percent increase in gasoline prices and a 15.4 percent rise in home heating oil costs were responsible for much of the acceleration in prices last month, other large increases were widespread, especially for housing and medical care, the department said.
"I think this is a marvelously characteristic inflation number," said economist Joel Popkin, an expert on consumer prices who heads a consulting firm here. "It delineates better than words what the inflation problem is. Half of it is from the 'core' inflation rate that existed before the Iraqi invasion, and the other half is from energy."
The so-called core rate is the change in the three-fourths of the CPI that excludes volatile food and energy prices. That portion of the index increased 0.5 percent last month, more than many analysts had expected.
With the core rate rising so rapidly, a number of analysts said it could deter Federal Reserve policy makers from reducing short-term interest rates to give a weakening U.S. economy a boost. Fed officials, like most economists and policy makers, regard increases in the core rate as more important than changes in food or energy prices, which may be more easily reversed in the future.
The current jump in inflation "illustrates that if you defer action on a problem, it increases your vulnerability when something goes wrong," Popkin said. "The core rate is the real problem, and the core rate will be with us even after the Iraqi business is resolved."
Popkin and other analysts said the monthly increases in the CPI will remain high for some time to come and will make this year's inflation rate more than 6 percent, the highest since 1981.
Within another month or so, higher prices for petroleum products will have boosted the level of the CPI by 1 percent. Secondary "ripple effects" for oil price increases will raise the price level by another full percentage point in 1991, Popkin predicted, as prices for airline tickets, charges for transporting goods, the costs of raw materials for a variety of industries such as chemicals and plastics and other costs related indirectly to oil use all rise.
If consumer prices go up as much this month as in August, Social Security beneficiaries would see their monthly checks go up 5.3 percent in January, rather than the 4.7 percent the Bush administration had assumed in its latest official budget calculations. The higher cost of living adjustment, which is based on changes in the CPI for urban workers, would add an extra $1.5 billion to the bill for benefits next year.
The brighter spots in yesterday's report were apparel, entertainment and food. Apparel prices, after rising sharply early this year, have on average gone down over the past five months. Entertainment costs rose only 0.2 percent last month and are up 4.5 percent in the past year.
Food prices rose 0.3 percent last month after rising 0.4 percent in July and 0.7 percent in June. Falling fresh fruit and vegetable prices accounted for much of the slower increases in grocery store prices, the department said.
Housing costs rose 0.7 percent, the third substantial monthly increase in a row. While the housing component of the CPI -- which represents 42 percent of the entire index -- was up only 4.8 percent since August 1989, it has gone up at a 7.4 percent annual rate in the past three months.
PERCENT CHANGE IN THE PRICE
OF ASSORTED GOODS
FOR URBAN CONSUMERS,
SOURCES:Bureau of Labor and Statistics:;