Byline: Carol Emert With contributions from Joanna Ramey

WASHINGTON — One day after the Federal Reserve again raised interest rates to gird against inflation, the economy Wednesday got its best inflation report in six months, with retail prices up only 0.1 percent in October against September, and no change in prices for women’s apparel.
The Consumer Price Index, the government’s most-watched inflation indicator, also moved up 2.6 percent against a year ago, with women’s apparel prices posting a decline of 2.1 percent. Apparel prices in total in October declined 0.5 percent against September and were down 0.9 percent against October 1993.
Thomas R. Carpenter, senior economist with ASB Capital Management Inc., an investment adviser here, said the Fed’s action is designed to forestall inflation down the road, presaged by current high rates of employment and factory capacity usage. Unemployment at 5.8 percent is considered close to the minimum, while capacity utilization in October measured 84.9 percent, exceeding the highest rate seen before the 1990-1991 recession, he said.
“The Fed in the past has waited for clear signs of inflationary pressures and had to be aggressive by quickly raising rates and ultimately throwing us into a recession,” said Donald Ratajczak, director of the Economic Forecasting Center at Georgia State University.
This time, the Fed is attempting to “get the economy into a long-term, non-inflationary growth path and just let it glide,” Ratajczak said.
Some economists expect the three-quarter point hike in short-term interest rates to dampen consumer spending just as apparel appears to be rebounding after a long period of lackluster sales. A Commerce Department report released Tuesday said October sales growth at apparel specialty stores was significantly higher than at department stores or mass merchants against September, seasonally adjusted.
Apparel store sales rose a seasonally adjusted 1.4 percent in October from September to $9 billion from $8.89 billion. Department store sales rose 0.6 percent, to $18.6 billion, while sales at general merchants gained 0.3 percent to $24.2 billion. Compared to October 1993, specialty store sales were up 0.4 percent, department store sales gained 7.7 percent and general merchandise sales increased 6 percent, Commerce said.
The Fed hike “is not the best news for Christmas, but it’s not a disaster…either,” said Ratajczak. “This might take a little bit of the luster off of [the expected apparel rebound] but I still expect this to be a decent apparel year.”
Pent up demand and low prices should prevent apparel from sitting on store shelves, several analysts said. Sandra Shaber, an economist with the WEFA Group economic forecasting firm, said continued job and income growth will also encourage people to shop for Christmas.
Carpenter said he expects consumers to continue to spending robustly until their credit card and other interest rates go up, which in many cases will not be until after the holidays.
“However, by this time next year, I think we will see the cumulative impact of this and prior increases and probably some more [rate increases] to come in 1995,” Carpenter said.
Rosalind Wells, a retail analyst with Management Horizons Inc., said she is worried that the steep rate increases could slow the economy enough to cause a recession when the business cycle bottoms. The Fed policy makers “really don’t know how much is needed to forestall the inflation they see coming down the road,” Wells said.
Separately, the Federal Reserve reported that production of textiles and apparel increased in October after falling in September. Apparel production rose 0.2 percent while textile output gained 1.2 percent for the month on a seasonally adjusted basis.

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