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To: long-gone who wrote (12004)	5/21/1998 2:05:00 PM
From: Bucky Katt	Respond to of 116825

Economists Play Down Impact of CPI Rise NEW YORK - Inflation has raised its head for the first time since October, but economists said they are not worried that higher prices are permanently on the horizon. The Consumer Price Index, the Department of Labor's monthly measure of consumer prices according to baskets of goods and services, hiccupped 0.2 percent in April after remaining virtually unchanged in the first three months of the year. Economists said the major contributing factors to the rise of the index in April were tobacco, medical care and housing costs. "This is just one report of a slight increase in inflation," said William Sharp, senior economist at Chase Manhattan Bank in New York. "But one report does not identify a trend as of yet." Tobacco prices, which make up roughly 0.9 percent of the index, rose 3.8 percent last month, the most precipitous rise for all of the goods in the index. Economists said the sharp uptick in prices stemmed from tobacco manufacturers raising their prices and from the lawsuits they are currently settling in individual states. "This is a huge increase, far and away the largest increase in the CPI," said David W. Berson, chief economist for Federal National Mortgage Association in Washington, D.C. "So even though it has a small weight, it is going up very quickly and it is clearly having an impact on the overall CPI." Medical care accounts for 5.6 percent of the index. Michael L. Penzer, vice president and senior economist for Bank of America in San Francisco, linked this sector's 0.4 percent rise to accelerating expenses for health maintenance organizations. "Our best guess is that the medical price component of the CPI will probably start to accelerate because about as many workers as can be forced into HMOs over the last few years have been pushed into them," Penzer said. "And that was helping to keep the medical price component of the CPI down, and that structural shift into HMOs is over. The second point is that HMOs have announced really big increases." Housing, which makes up roughly 40 percent of the CPI, also rose 0.4 percent. Experts attributed the increase to a very tight market for houses. While the CPI does not include the prices of existing homes, it takes into account something called owners equivalent rent. Owners equivalent rent is the scale of rents related to price of existing homes. "There has been extremely strong demand for housing," said David W. Berson, chief economist for the government-sponsored mortgage corporation Fannie Mae. "At the same time, builders have been remarkably restrained in the numbers of new homes they have built, and in fact if you look at the inventory of unsold homes the inventory is very low." The Federal Reserve will look at the CPI, as well as a number of other indicators, when making its decision whether or not to raise interest rates this month and in the months ahead. The slight increase in inflation last month has led experts to estimate only a minimal increase in inflation to 1.8 percent for 1998 - about 0.1 percent higher than last year. "If the CPI continues to move up on a sustained basis, then later on in the year the Fed could tighten monetary policy," Berson said. "One month's increase is not a sustained increase, so it is unlikely the Fed would do anything tomorrow."