Consumer prices inch up; inflation remains manageable

Wednesday, November 20, 2002

WASHINGTON -- Consumer prices rose modestly in October, especially hitting the wallets of motorists and Americans needing medical care. But falling prices for airfares, computers and other items provided some bargains.

The government's most closely watched inflation gauge, the Consumer Price Index, increased 0.3 percent in October from the previous month, the Labor Department reported Tuesday.

The latest reading on inflation, which matched analysts' expectations, followed a 0.2 percent advance in September and equaled the rise posted in August.

"At this point, inflation remains restrained, and that's good news for consumers," said Lynn Reaser, chief economist at Banc of America Capital Management.

Separately, the Commerce Department said the nation registered a $38.03 billion trade deficit in September, the second highest on record.

The red-ink ledger reflected a surge in demand for foreign cars and airplanes.

The September deficit was down $254 million from the all-time high of $38.28 billion set in August.

The 0.7 percent decline in the overall deficit from month to month reflected the fact that imports dropped by 0.5 percent, mainly because the oil shipments were down sharply.

Federal Reserve chairman Alan Greenspan told Congress last week that inflation does not currently pose a danger to the economy, which is struggling to return to full health after being knocked down by last year's recession. Greenspan said many companies, facing the uneven economic recovery and questioning consumers' appetite for spending, have limited power to raise prices.

One reason the Federal Reserve had leeway to cut a key interest rate earlier this month by a bold half a percentage point to a 41-year low of 1.25 percent is because inflation has been relatively well-behaved.

The Fed's Nov. 6 rate cut marked the first reduction this year and the 12th since January 2001.

Speaking Tuesday to the Council on Foreign Relations, Greenspan said the Fed would not be "out of business" in terms of stimulating the economy even if it should push that key rate to zero. He said the Fed could buy other U.S. Treasury securities with varying terms of maturity to pump cash into the financial system and stimulate economic activity.

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