Archive for Friday, January 16, 2004

Inflation in check during 2003

January 16, 2004


— Inflation was firmly under control as the new year began.

Consumer prices rose by just 1.9 percent in 2003, while the underlying rate of inflation, which excludes food and energy prices, registered its smallest increase in 43 years.

Federal Reserve Chairman Alan Greenspan and other economists have said inflation was not a threat to the economy. Their view was bolstered with Thursday's release by the Labor Department of the latest reading on the Consumer Price Index, the government's most closely watched inflation gauge.

The 1.9 percent increase in the index for all of 2003 was the smallest since 2001 and compares with 2.4 percent in 2002. Cheaper computers, cars and clothes helped to blunt more expensive medical care, college tuition, beef and energy products.

"If you are buying clothes and vehicles and going to movies, all is right with the world. If you are eating, paying medical bills ... and sending a child to college, you are stressed," said Joel Naroff, president of Naroff Economic Advisors. "As the saying goes, where you stand on inflation depends upon where you sit."

Excluding food and energy prices, which tend to be volatile, core consumer prices rose by just 1.1 percent last year, the smallest increase since 1960. In 2002, core prices posted a 1.9 percent increase.

That is good news for consumers, generally speaking. A long bout of lackluster economic activity, which began to turn around in the second half of last year, made it difficult for many companies to raise prices.

With inflation under control and the labor market still struggling, Fed policy-makers have leeway to hold their main short-term interest rate at 1 percent, a 45-year low, at their next meeting on Jan. 27-28, economists said.

"With the December CPI report showing inflation entirely benign, the Fed can stay on hold indefinitely," said Bill Cheney, chief economist at John Hancock.

Commenting has been disabled for this item.