Inflation Report Spurs Bush to Urge Fed to Trim Rates

WASHINGTON —  Consumer prices continued to rise at a moderate pace in December, the Labor Department reported Thursday, and the White House used the news to send a public signal to the Federal Reserve Board that it should let interest rates fall.

The consumer price index rose 0.4% in December, the same as in the previous month, despite a sharp rise in fuel costs. For all 1989, the index rose 4.6%, slightly above the 4.4% increases posted in each of the previous two years.

The December rise was slightly smaller than expected. Some analysts had anticipated that the impact of the cold spell that affected most of the nation would send prices of fuel and fresh fruit soaring. Fruit prices remained moderate, however.

The relatively tame inflation rate for December brought a renewal of charges by the White House that the Fed, in its zeal to control inflation, has kept interest rates so high that they threaten economic growth.

Presidential press spokesman Marlin Fitzwater noted that the 4.6% price increase for 1989 was well below the 4.9% that the Administration had forecast a year ago. It indicates “that inflation is low and under control,” Fitzwater said.

Fitzwater took issue with concerns attributed to key Fed members that inflation remained worrisome. The Wall Street Journal quoted Fed members Thursday as saying they would not support any new moves to drive interest rates down.

“We are hopeful that they will take a look at this morning’s indicators and understand that . . . lower interest rates are justified,” Fitzwater said. He noted that officials “don’t see the . . . kinds of red flags” about the economy “that would give us real concern.”

Fitzwater’s upbeat assessment of the inflation picture was shared by Barry P. Bosworth, a Brookings Institution economist who had forecast sharper price rises. “I think it’s a big surprise that inflation is not higher,” he said.

Bosworth said the major factor holding the inflation rate in check was that wage increases have continued to be moderate--a trend, he said, that reflects growing insecurity among blue-collar workers about their jobs, particularly in the face of international competition.

He predicted that inflation would remain at about the current rate for the foreseeable future. But he added wryly, “I have been wrong for the past two years.”

The December report was made even more comforting by the fact that about half the rise in the overall index stemmed from an increase in tobacco prices, which soared 2% over the month, reflecting a sharp jump in wholesale prices.

Nevertheless, not everyone was sanguine about the numbers.

Joel A. Popkin, a Washington-based inflation specialist, noted that the “underlying” rate of inflation, which excludes volatile sectors such as food and energy prices, returned to an annual rate of 5.3% during the final three months of the year--erasing a midyear improvement.

“Inflation came in in 1989 like a lion, and it’s going out like a lion,” Popkin said. “It’s a pervasive, moderate acceleration.”

December’s inflation brought the overall consumer price index to 126.1% of its 1982-84 average, meaning that it took $12.61 last month to buy the same goods and services that cost only $10 five to seven years before.

A special index for Southern California showed that consumer prices in the Los Angeles-Anaheim-Riverside area rose 0.5% in December, the same as in the previous month. The rise for all of 1989 was 5.2%.

The sharp increase in fuel prices over the month--fuel oil rose 3.8% in December and 19% for the year--was partly offset by a 2% decline in gasoline prices, which ended the year 25% below their peak of March, 1981.

Medical costs rose 0.5% in December to a level 8.5% above that of a year before. Prices of physicians’ services jumped 0.7% during the month, rising 6.5% for the year. Hospital charges jumped 0.3% to a level 11.3% above that of 1988.

In a sharp turnabout from previous months, the cost of apparel and upkeep plunged 0.7%--reflecting longer end-of-season sales, particularly for women’s clothing. During the past 12 months, clothing prices have risen 0.7%--far below the 4.9% jumps of 1987 and 1988.

The developments came as the Labor Department reported separately that the average weekly earnings of rank-and-file production workers were unchanged in December. Hourly earnings rose 0.6% during the month, but the length of the average workweek shrank by 0.3%.

For the year as a whole, average weekly earnings of production workers were 3.2% higher than in 1988. Earnings rose 4.1% over the year, but the workweek declined by 0.9%, reflecting the past eight months’ slowdown in the economy.