Economists See A New Surge in Inflation despite Interest-Rate Hikes, the Consumer and Producer Price Indexes Are Creeping Upward

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THE United States inflation rate is beginning to worry economists. They now see a bulge in prices, despite the efforts of the Federal Reserve Board to rein in the economy.

Recent price trends indicate that the nation's chief measures of inflation - the Consumer Price Index (CPI) and the Producer Price Index (PPI) - are starting to expand, compared with last year. Economists believe that inflation, as measured by a broader gauge, consumer prices, is moving upwards at a 3.5 percent annual rate, compared with the 2.6 percent annual rate recorded last year.

"Inflation is starting to creep upwards," says Paul Kasriel, an economist at Northern Trust Company in Chicago.

In terms of the CPI, the creeping was fairly restrained in August. Yesterday, the government reported that the CPI, a broad measure of inflation, grew a moderate 0.3 percent, as falling clothing prices offset higher energy and food prices.

Despite the moderate rise in August prices, though, economists have started to track steadily rising prices. For example, in August, the CPI was up 2.9 percent compared with last year. In July, it was up 2.8 percent compared with 1993. And, in June, the change was 2.3 percent.

"This is not to say inflation is out of control, but it is rising," says Veronika White, an economist at Fidelity Bancorporation in Philadelphia.

The troubling inflation trend is likely to result in a fierce debate when the Federal Reserve meets on Sept. 27. So far this year, the Fed has boosted interest rates six times. However, many economists don't expect the Fed to act until it gets more data.

"I don't think the Fed will act again until November," Ms. White says.

Michael Keran, chief economist with Prudential Economics, maintains that slack in the economy will bring inflation back down again next year to a 2.5 percent rate after a bulge over the next few months.

Economists expect the Fed will be closely watching the retail-sales numbers that will be released today.

"I think the Fed will be worried if consumer demand remains strong," says Peter D'Antonio, a senior economist at Citibank. Even more important, he says, will be the October sales report when back-to-school sales are reported. …

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