Prices Jump; Trade Deficit at High

Wednesday, February 21st 2001, 12:00 am

By: News On 6

WASHINGTON (AP) â€” Consumer prices shot up a worrisome 0.6 percent in January, the biggest increase in 10 months, as homeowners saw their natural gas bills jump by a record amount, the Labor Department said Wednesday.

The rise in the closely watched Consumer Price Index was the largest since a 0.6 percent increase in March 2000. Last month's figure reflected a record 17.4 percent increase in the price of natural gas, a development that has sent residential gas bills over the $300 mark in many parts of the country.

The January increase in inflation, which followed three straight monthly gains of a moderate 0.2 percent, was double what private economists had been expecting.

Meanwhile, the Commerce Department said America's trade deficit with the rest of the world rose to an all-time high of $369.7 billion last year even though the December deficit shrank for a third straight month.

Investors seemed to take the two reports in stride. By midday, the Dow Jones industrial average had lost 31 points and the Nasdaq index had gained 15 points.

The trade deficit for all of 2000 was 39.5 percent higher than the previous record-holder, a deficit of $265 billion in 1999. The increase occurred even though the deficit for December narrowed a slight 0.4 percent to $33 billion.

In a sign of things to come, China overtook perennial front-runner Japan as the country with the largest trade gap with the United States.

The trade deficit has set an annual record for the past three years as the strong U.S. economy has been a magnet for imports while many of America's major export markets have been struggling to recover from currency crises in 1997 and 1998.

The acceleration in price pressures last month was led by a 3.9 percent jump in energy prices, the worst showing since September. Natural gas prices rose 17.4 percent from last month â€” the largest one-month increase on record. Electricity prices were up 2.6 percent from last month, the biggest one-month gain since February 1980.

Outside the volatile food and energy categories, the ``core'' rate of inflation was up 0.3 percent in January, the largest increase since November.

The 0.6 percent rise in the overall Consumer Price Index followed an even bigger 1.1 percent surge in wholesale prices last month, the biggest jump in more than a decade.

Critics of U.S. trade policy see the rising trade deficits as a major flaw in free trade that has allowed low-wage countries to displace American manufacturing workers.

But free-trade supporters, including top economic officials in the Bush administration, contend that America has no option but to compete in the global economy.

That was also the position taken by the previous Clinton administration, which angered its labor constituency by resisting protectionist pressures at home while pursuing a strategy of tearing down foreign trade barriers.

American exports, propelled by strong demand for farm products, autos and industrial materials, rose by 11.7 percent to top the $1 trillion mark for the first time at $1.07 trillion. But imports were up an even sharper 17.8 percent to $1.44 trillion, driven in part by a rising foreign oil bill.

The country imported a record 3.4 billion barrels of crude oil with the average price rising to $26.41, the highest level in 16 years, since a $27.68 average in 1984.

Among individual trading partners, America suffered the biggest shortfall with China, a record imbalance of $83.8 billion, 22 percent higher than in 1999.

The deficit with Japan, which for decades has been the front-runner, also set a record at $81.3 billion, an increase of 10.8 percent over the 1999 imbalance.

America's deficit with its biggest trading partner, Canada, climbed to a record $50.4 billion while the trade gap with Mexico, the other partner in NAFTA, rose to a record $24.2 billion. The deficit with Western Europe hit a record $59.8 billion.

For December, the $33 billion deficit compared to $33.1 billion in November and $33.6 billion in October, all down from the all-time monthly high of $33.8 billion set in September. It marked the first time the trade deficit has improved for three straight months since mid-1995.

Food costs last month rose a more moderate 0.3 percent after posting a 0.5 percent gain the month before. Housing costs were up 1 percent after more moderate increases through most of last year.

If the January rise in consumer prices continued for an entire year, something forecasters are not expecting, inflation for all of 2001 would be a sizable 7.8 percent.

Last year, consumer prices rose by 3.4 percent, the biggest increase in a decade, reflecting a second year of rising energy prices. Most analysts think inflation this year will be better controlled.