Wholesale Prices Rise 0.3% in April; Biggest Increase in 5 Months

Driven by a surge this spring in the costs of gasoline and heating oil, wholesale prices rose 0.3% in April, the largest such increase in five months, the Labor Department reported Friday.

But analysts were quick to point out that the rise in energy prices did not signal a trend toward higher inflation. Robert Gough of Data Resources Inc. in Lexington, Mass., branded the increase “a false alarm.”

Inflation at the wholesale level has run at an annual rate of only 1.7% since January, the Labor Department said, even though April showed an annual rate of 3.8%--itself a relatively modest pace.

“It may look bad compared to the very low inflation we’ve been having, but there is no cause for concern,” Gough said. Abundant wheat and corn stockpiles, promising stable or lower food prices and the probability of continued small wage increases--especially in manufacturing industries--should keep the underlying inflation rate low, he said.

Allen Sinai, chief economist for Shearson Lehman Bros., agreed: “The report is very positive on the inflation front.”

Food Prices Fall Again

Without the 9.5% surge in gasoline prices and an even steeper 10.2% increase for heating oil, wholesale prices for finished goods would have fallen last month, many economists noted. And, because of a quirk in record keeping by the Bureau of Labor Statistics, the reporting of fuel price increases lags by a month--so the rises actually occurred in March.

Food prices, meanwhile, fell for the fourth time in as many months. Prices for consumer goods also were lower, and capital goods were unchanged. The overall producer price index had not risen so steeply since November, when it recorded a similar 0.3% rise.

“The index would have been down without the energy component, and we’ll still have agreeable inflation results as a consequence of the strong dollar: Cheap imports will keep pressure on commodity prices, keeping inflation low,” Sinai said.

The primary question raised by Friday’s report was why the sudden surge in energy costs had occurred. Philip K. Verleger, a specialist in energy economics with the Boston-based consulting firm of Charles River Associates, said: “The U.S. energy market was extremely soft in November through January, more so than the world market.”

But he said that, since then, American refining companies have been bringing their operations more in line with market conditions--meaning less oil has been refined as the companies let inventories dwindle, reducing a glut in gasoline, fuel oil and other products that had depressed prices and cut sharply into oil industry profits.

‘Misleadingly Low Result’

Sinai and Gough predicted that the “blip” in energy prices would last for at least another month but would fade as the summer progressed. “After that, we expect low rates of inflation for the next few months,” Sinai added.

At the same time, he cautioned that Friday’s reported increase in the producer price index, which reflects only the wholesale prices of goods and commodities, depicts “a misleadingly low result because it includes no services.” He asserted that the services sector of the economy continues to boom while goods manufacturing remains weak.

“The bloom is off the rose in capital goods spending,” Sinai said. “Consumer spending for goods is weak. The economy seems divided into two different worlds, with the higher cost of services reflected in the consumer price index but low goods and commodity prices in the producer price index.”

For that reason, economic forecasters generally expect wholesale price inflation of about 1.5% to 2% but consumer price inflation of about 4%.