‘94 Consumer Prices Rose Just 2.7%; Analysts Say It Won’t Last : Economy: They cite mounting inflationary pressures in predicting that the Fed will boost interest rates soon.

Consumer prices rose a modest 2.7% in 1994, the same as in 1993, the Labor Department reported Wednesday, but economists said mounting pressures are sure to boost the rate of inflation in the coming year.

In anticipation, economists widely expect the Federal Reserve Board to once again increase short-term interest rates, perhaps by half a percentage point, when its members convene at the end of this month.

“The consumer price index figures cap a year in which inflation performed exceptionally well,” said Richard Berner, chief economist of Mellon Bank in Pittsburgh. “But they’re past history, and . . . the best news on inflation is behind us.”

Capped by a 0.2% increase in prices in December, the inflation rate was near 3% for the fourth year in a row, economists said. In November, the CPI rose 0.3%.

Clothing prices and airline fares plunged last month, medical care costs rose only modestly and housing prices remained relatively flat.

Food prices were up 1%, reflecting higher prices for fruits and vegetables in the wake of tropical storm Gordon in the Southeast. Energy prices were down 0.3%, after rising 0.7% in November.

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Excluding volatile food and energy prices, the so-called core inflation rate rose 0.1% in December, the lowest rate since last January, and 2.6% for the entire year, the smallest increase since 1965.

For the coming year, economists expect inflation nationally to be about 3.5%, higher than in recent years but still low by historical standards.

Price pressures are building as the bustling national economy runs at nearly full capacity, with a low 5.4% unemployment rate putting the squeeze on employers to raise wages, economists said.

“I think wages will pick up this year, and that will push the important services part of the CPI up at a faster rate than last year,” said Gary L. Ciminero, chief economist at Fleet Financial Group in Providence, R.I.

Rising commodity prices are also pinching manufacturers, who will probably raise prices to restore dwindling profit margins. And rising consumer confidence suggests that buyers may be more willing to pay higher prices than in the past.

In the Los Angeles area, which is still struggling to emerge from recession, the inflation rate was only 1% in 1994, the lowest level since 1961, said Sam Hirabayashi, regional commissioner for the Labor Department’s Bureau of Labor Statistics in San Francisco. The rate was 2.5% in 1993 and 3.6% in 1992.

“I think (California) will remain below the national inflation rate during at least the next two years,” said Lynn Reaser, chief economist at First Interstate Bancorp in Los Angeles.

For its part, the Fed is likely to act to prevent the economy from overheating. In a letter last month to Congress’ Joint Economic Committee, Fed Chairman Alan Greenspan said that tightening credit “is essential if we are to create a more stable environment for small businesses to grow and prosper and avoid the disruptions that have frequently occurred in the past as inflation has picked up.”

Since last February, the Fed has raised the federal funds rate on overnight loans among banks six times, to 5.5% from 3.0%.

Separately, the Labor Department announced that, starting this month, it will revise its method of calculating the consumer price index to correct what many say is its overestimation of the real level of inflation.

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Consumer Price Index

Percentage change from prior month, seasonally adjusted:

Dec. 1994: 0.2%

Source: Labor Department