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Inflation Gives Consumers A Break Consumer Price Index Rises A Mere 1.7% In 1997, The Lowest Rate Since 1986

Wed., Jan. 14, 1998

Prices for consumers rose a scant 1.7 percent in 1997 - the lowest inflation rate in 11 years - and economists are predicting the Asian financial crisis could slow growth in prices even more this year.

Because the dollar is gaining in value compared with many Asian currencies, such items as imported cars, computers, toys and clothing all will be relative bargains in coming months, experts believe.

The consumer price index - the government’s measure of inflation’s impact on the average urban resident - edged a seasonally adjusted 0.1 percent higher in December, kept in check by steep drops in food and energy costs, the Labor Department said Tuesday.

Even more impressive, the core inflation rate - the figure for all goods and services except the volatile food and energy categories - advanced 2.2 percent, its slowest pace since 1965. The overall 1997 CPI figure represented a substantial improvement for consumers over 1996, when prices climbed 3.3 percent.

The slowdown in 1997 was prompted by food and energy costs. Grocery store prices rose a negligible 1 percent compared with a 4.9 percent jump in 1996. Energy prices dropped 3.4 percent, in sharp contrast to a gain of 8.6 percent a year earlier.

The trend is expected to continue this year. Initial inflation estimates for 1998 had suggested a CPI rate of 2.5 percent, “but clearly, it will be 2 percent or lower” because of the reduced prices of imports from Asia, predicted Dean Baker of the Economic Policy Institute.

With inflation seemingly no threat, analysts said it is unlikely the Federal Reserve Board will consider raising interest rates any time soon. The debate may swing in the other direction, with Fed critics asking the central bank to reduce interest rates.

U.S. workers, who saw their buying power steadily erode in the late 1980s and early 1990s, are making up some of the lost ground because wage increases are outpacing prices. Average hourly earnings rose about 3.7 percent last year. The 1.7 percent rise in the cost of living means the average worker increased his or her purchasing power by 2 percent.

“The good news is we are seeing increases, but we have a long way to go to make up lost ground” because wages, adjusted for inflation, still lag behind 1989 levels, Baker said.

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