Tumbling oil prices drove overall retail prices down 0.4 percent in March for the second month in a row, giving consumers the biggest two-month price decline in 36 years, the Labor Department reported yesterday.
Gasoline prices fell a record 12 percent last month, and this was the major factor in the decline in the consumer price index in March, which followed a 0.4 percent drop in February, the department said. It was the first time prices have fallen for two consecutive months since 1965 and was the sharpest two-month decline since prices fell 0.4 percent in both December 1949 and January 1950.
White House spokesman Larry Speakes hailed the "continuing good economic news," saying, "There will be more money in Americans' pockets to buy more goods and services at lower prices."
The decline in consumer prices in the first three months of the year was the strongest for any quarter since 1954, the Labor Department said. If prices continue falling at that rate through 1986, the index would be down 1.9 percent for the year.
Energy prices overall fell 6.5 percent last month, the Labor Department said. Consumer prices, excluding energy, rose 0.3 percent.
Economists said they expect consumer prices to continue plummeting through the spring, and then to rise during the second half of the year as oil prices stabilize, until inflation reaches the rate of last year -- between 3 and 4 percent.
Consumers are expected to enjoy a windfall this year from lower oil prices, and probably will spend nearly all of it on other goods, giving a boost to the overall economy later in the year, economists said. Consumer spending constitutes about two-thirds of gross national product, which is the nation's output of goods and services.
According to Data Resources Inc., each $1-a-barrel drop in the price of oil saves each American household $35 over a year, or a total of $3.8 billion. So far this year, prices have declined from about $27 a barrel to less than $14.
Falling oil prices help the economy in other ways as well, said David Berson, senior economist for Merrill Lynch Economics. They lower costs for businesses and thus help ease pressure on companies to raise prices for goods and services. And because consumer price indexes are used in some wage agreements, the oil price decline should moderate labor costs.
In addition to the slide in oil prices, consumers are benefiting from a steady decline in interest rates. Rates for mortgages and some other consumer loans are expected to fall in the next three months, providing further savings for consumers, economists said.
Meanwhile, paychecks were fatter last month, the government said yesterday. Gross weekly earnings of workers increased 1.2 percent in March for the largest monthly gain since a 2.3 percent increase in February 1982, the government said.
But perhaps the most dramatic gain for consumers has come from lower prices for motor fuels, which locally fell 11.4 percent in February and March.
Berson said that, although stronger consumption hasn't yet showed up in economic statistics, "We'll get a bigger punch from bigger oil price savings by this summer, a bigger impact on consumption of things other than gasoline."
Energy prices fell 16.9 percent in the first three months of this year, an annual rate of decline of 52.3 percent. Gasoline prices are now at the level of late 1979 and are 27 percent below their peak in March 1981.
Medical-care costs, which generally have increased faster than other categories of goods and services, rose 1 percent in March, the largest monthly rise for this component since July 1982, Labor said.
Prices for used cars, apparel and airline travel also fell last month, while prices increased for new cars and auto maintenance. Auto insurance costs jumped sharply, Labor said.
The price of food at grocery stores was unchanged in March following a 1 percent decline in February. The index for meats, poultry, fish, eggs and dairy products fell last month. During the past 12 months, beef prices have fallen 1.5 percent and the cost of pork has dropped 1.2 percent.
The consumer price index was 326.0 in March, which means that goods that cost $10 in 1967 cost $32.60 last month. Another index, which is used as an escalator in some labor agreements, was 321.4 last month.
In a separate report, the Commerce Department reported that new factory orders for durable goods dropped 2.5 percent in March for the sharpest monthly decline in a year. Orders were buoyed by activity in the defense sector. Excluding defense, orders fell 5.7 percent for the sharpest decline since August 1982.
New orders for nondefense capital goods, considered a gauge of future business spending, fell 6.5 percent in March, following a rise of 17.7 percent in February. Orders for defense capital goods increased 41.5 percent in March after falling 30.4 percent the previous month. D.C.-Area Prices Fall 0.6% During February, March
Washington-area consumer prices fell 0.6 percent in February and March as sharp drops in gasoline and clothing prices helped produce the largest recorded price decline in the area since 1954, the Bureau of Labor Statistics reported yesterday.
The benefits of the sudden collapse of oil showed up for the first time as overall energy prices fell 8.2 percent and transportation costs declined 2.4 percent, including a sharp 11.4 percent plunge in motor fuel prices. Home heating fuel prices dropped 17.7 percent, helping to produce declines of 0.7 percent in the cost of owning a home and 0.2 percent in rental costs.
In addition, clothing and clothing-repair costs fell 1.4 percent, led mainly by drops of 0.2 percent in men's and boys' apparel and 1.8 percent women's and girls' apparel. But one government economist called these figures a "fluke" that contrasted with nationwide price increases for the same items.
He said they were the result of pre-Easter sales and changes in price sampling methods.
Food and beverage prices decreased 0.2 percent, including a 0.5 percent drop in grocery-store food prices. This was a result of sharply lower prices for fresh vegatables and moderately lower prices for fish, beef and processed vegatables.
Unlike the drop in oil prices, the drop in food costs did not reflect larger long-term trends in the economy, economists and food-store officials said.