Wholesale Prices Rise 0.3% in July; Analysts Say Inflation Checked

Wholesale prices, pushed by a spurt in food costs that economists dismissed as “aberrational,” increased 0.3% in July, the Labor Department reported Monday.

Gasoline and fuel-oil prices fell for the second straight month, somewhat offsetting a steep 22.2% rise in wholesale vegetable prices and large gains in pork, fish, eggs, coffee and rice, the department found. Overall, the cost of food rose 1.3%--the highest in a year.

At the same time, the department revised June’s producer price index downward from unchanged to a minus 0.2%. In the previous four months, small increases had been reported.

White House spokesman Larry Speakes, in Santa Barbara with a vacationing President Reagan, called the July report “very good news.” He described the increase in food prices as temporary and said: “There is no sign of a pickup in inflation. . . . The bottom line is that the recovery continues well in gear.”

Economists Say Inflation Tamed

So far this year, wholesale prices have increased at an annual rate of only 1.4%. And since July, 1984, the measure has risen a scant 0.9%, leading to a consensus among economists that inflation is thoroughly in check.

Thus, Monday’s report of continuing low price increases for most commodities except food “was anticipated,” said Robert Gough, a senior vice president of Data Resources, a private forecasting firm in Lexington, Mass. Moreover, he said, the sharp rise in food prices was “aberrational” and is not likely to be repeated soon.

As the economy continues to be sluggish, no upward pressure on either prices or wages is felt, Gough explained.

In addition, the continuing flood of foreign imports, decreasing world energy prices and the probability of record harvests this fall should keep fuel prices down and force food prices to fall, as they did earlier this year.

“There is not one major factor that governs inflation that isn’t good news,” Gough declared.

Analyst Allen Sinai of Shearson Lehman Bros. agreed, saying: “Inflation remains quite subdued.”

He, too, dismissed the bulge in food prices as a deviation that should vanish later.

“There is no significant reinflation in sight,” Sinai added, citing two indicators that point to even lower wholesale prices in the coming months--intermediate goods, which fell 0.3% in July, and crude materials, down a sharp 0.6%.

In fact, he said, the only thing to prevent deflation in basic commodity prices is the likely continued drop in the dollar, “which will, after three to six months, help firm those prices.” Even so, Sinai predicted that the wholesale price index will have increased a mere 1.5% during the whole year.

Robert F. Wescott of Wharton Econometrics in Philadelphia contended that falling prices eventually could cause hardships in basic-resource industries, especially agriculture.

“This disinflation is starting to become worrisome,” Wescott said. “Basic prices farmers receive are off 12% from last year. Their basic income is two-thirds of last year’s. It’s fast getting to the point where it’s driving people out of the business.”

Further, he noted, falling commodity prices point to little likelihood for price increases in any basic resource industries, such as forest products, energy and steel, as well as agriculture. “Low-inflation psychology now has a life of its own,” he added.

Because of a change in survey techniques by the department’s Bureau of Labor Statistics, the July wholesale price index for the first time reported actual gasoline and fuel-oil prices for the month, rather than lagging by a month, as in the past.

The July index for finished energy goods fell 1.4%, while an even sharper drop of 3.3% in June, reported Monday for the first time, was the primary cause of the downward revision in that month’s index.