August Wholesale Prices Down 0.3%, Biggest Drop in 2 1/2 Years : Robust Retail Sales Gain of 1.9% Also Cheers Economists

Associated Press

Spurred by falling food and fuel costs, wholesale prices skidded down 0.3% in August, their steepest drop in more than 2 1/2 years, the Labor Department said today.

The decline in the producer price index--the fourth in the last 12 months--means that wholesale prices have risen at an annual rate of just 0.8% so far this year.

At the White House, President Reagan hailed the latest figures as “further evidence of the miraculous powers of American enterprise.”

Meanwhile, the Commerce Department, in a new sign that the long-awaited economic rebound may have started, said retail sales rose 1.9% in August.

Driven in large part by a 7.1% increase in auto sales, overall sales posted their best gain since April to a record $116.1 billion.


The prolonged weakness in consumer demand had led to growing concern among many economists about whether the country might be in danger of slipping into a recession.

Production Up 0.3%

In another development, the Federal Reserve Board said production rose 0.3% at the nation’s factories, mines and utilities in August after no gain in July. The increase matched the strongest advance this year but was well below those posted during the early stages of the current economic recovery.

The chairman of the President’s Council of Economic Advisers, Beryl W. Sprinkel, briefing reporters at the White House after the release of the new numbers, said: “We should all keep in mind that as the economy emerges, as it’s now doing, from a period of slower growth, the economic statistics may remain mixed for a while. That is, not every number will be wholeheartedly positive news, as it has been of late.”

But Sprinkel said he regards the latest numbers as “more and more supportive of our expectations of renewed economic strength during the second half of this year.”

Some analysts are starting to hold out the prospect of plunging commodity prices holding the final 1985 wholesale price inflation rate even below the 0.6% increase in 1983--which was the smallest since 1964.

Food Costs Down 0.7%

Prices at the wholesale level rose 1.7% last year. As for last month’s drop, prices overall have not fallen at such a pace since the 0.7% decline registered in January, 1983.

The August index showed food costs dropping 0.7%, after a 1.3% increase in July that was the sharpest rise in a year. That big July increase was due largely to a 22.2% rise in fresh vegetable prices. In contrast, fresh vegetable prices declined 14.8% last month.

Gasoline prices, down 1.4% in July, fell 2.1% last month.

Inflation at the retail level is running at an annual rate of 3.7% so far this year, in contrast with a 4% increase for all of 1984.

The index for consumer goods other than food and energy showed no change, after three months of modest increases.