Wholesale Prices in March Post Modest 0.2% Increase

Wholesale prices rose a modest 0.2% in March, the Labor Department reported Friday, and economists said the increase was indicative of continuing low inflation, even though it marked the first 1985 increase in the index.

Small increases in a broad cross section of finished goods, from clothing to newspapers and from soaps and luggage to cosmetics and toys, offset lower prices for food and energy. The overall price increase in March followed a slight decline in the index in February, after no change at all in January.

During the first three months of the year, the wholesale price index for finished goods increased at an annual rate of 0.3%. The actual annual wholesale price increase since March, 1984, was also 0.3%. That was the lowest 12-month increase in that measure in 20 years, the Bureau of Labor Statistics said.

‘Very Stable Prices’

“It’s as good a price story as you’re going to get,” said Robert F. Wescott of Wharton Econometrics, a Philadelphia forecasting firm. “It contributes to the overall view that we will continue to have very stable prices on the producer end of the spectrum.”

Wescott said that “there is nothing worrisome about the price rises” last month because there is still enough slack in the apparently slowing recovery to offset the so-called “structural” inflation built into the economy.

For example, Wescott noted that production capacity is barely 81% and that, “at 7.2% unemployment, we are nowhere near anything you could call ‘full’ employment. There is an extremely stable wage pattern.”

Robert Gough, a vice president of Data Resources Inc. of Lexington, Mass., agreed with that assessment, describing the wholesale price report as “the best economic news we’ve had in awhile.” He noted that prices of crude goods, including food and energy, declined by 1.5% on a seasonally adjusted basis, continuing a downward price trend in raw materials that began in January.

Prices of intermediate goods, such as sheet metal, flour and cloth, also continued on a downward path, decreasing by 0.2% in March. The weak prices for crude and intermediate goods, Gough said, “augurs very well for the future. It means prices at the producer level should be stable and low in the coming months. We are still looking to a 3.5% to 3.75% overall inflation rate for the year.”

Donald Ratajczak, an economist at Georgia State University, said he was surprised that a recent increase in gasoline and other finished petroleum products was not reflected in Friday’s price report. He predicted that prices of gasoline and fuel oil will increase in the next few months.

“When oil prices fell last fall,” Ratajczak said, “they fell more rapidly for refined products than for crude. Refiners felt they were in a profit squeeze and cut inventories, and we’re now getting the price increase from that.”

In Friday’s Labor Department report, the price of gasoline was down 0.8%, much less than the 3.4% decline in February and the 2.7% decline in January. Heating oil prices increased by 0.6% in March.