Food, Energy Costs Spur 0.8% Increase in Inflation

Pushed by sharp increases in food and energy costs, wholesale inflation spurted 0.8% in November for the second noticeable increase in as many months after nearly a year of stable or falling prices, the Labor Department reported Friday.

But economists agreed that the gain in energy prices would be reversed in the coming months and that the food price increase merely offset a year in which the cost of foodstuffs at all levels of production had fallen.

“It doesn’t mean inflation is coming back,” declared Donald Ratajczak, director of Georgia State University’s economic forecasting project. Even with the latest increases, wholesale prices so far this year have increased at a modest annual rate of only 1.8%.

Industrial Output Up

In a separate report, the Federal Reserve Board announced that industrial production had increased 0.4% for the month--an apparent piece of good news canceled out by the Fed’s downward revision of its estimate of October production from unchanged to a 0.4% loss, contributing to a trend of several months of stagnating industrial activity.

A Commerce Department report, also released Friday, showed a steep 2.5% increase in retail inventories for October, suggesting another poor Christmas sales season. But at the same time, manufacturing inventories decreased slightly and were barely changed from a year earlier--leading some economists to predict that industrial production might be on the verge of a turnaround after all.

The surge in wholesale prices for finished goods, which followed a 0.9% increase in October, “looks scary, but it’s mostly due to special factors” in food and energy, said David Wyss of Data Resources Inc., a leading forecasting firm in Lexington, Mass.

Forecaster Robert F. Wescott of Wharton Econometrics in Philadelphia observed: “Two months in a row of higher producer prices does not a re-acceleration of inflation make.”

In fact, Wescott went on, “the real story is that energy prices are poised to drop, and that will be an engine of disinflation for months to come.” Eventually, the drop in oil prices--foreshadowed by the virtual collapse this week of the Organization of Petroleum Exporting Countries (OPEC) as a price-maintaining cartel--should show up at all levels of the wholesale price index, including chemical goods, agricultural products and manufactured goods.

Dollar’s Decline Cited

Allen Sinai, chief economist with Shearson Lehman Bros., generally agreed that the food and energy price increases were temporary. But he cautioned that they might have been caused in part by the dollar’s continuing decline against other currencies.

“These are probably transitory effects that will fade out in the next few months, but the dollar has been dropping so long that you need to begin to look for impacts on inflation,” Sinai said. “The falling dollar raises the purchasing power of the rest of the world, and an impact on our prices can’t be ruled out.”

In addition, Sinai said he believed that much of the recent rise in food costs was caused by farmers’ selling crops to the government for storage at support prices higher than what has prevailed in the marketplace.

In general, food prices are lower than they were a year ago at most stages of production. Wholesale food prices, for example, were unchanged from November, 1984, despite a 1.6% increase last month. And crude foodstuffs, which soared 5.8% in November, still fell 6.4% below last year’s prices.

Energy Costs Up 2.6%

Similarly, energy costs surged 2.6% in November--but those prices remain 2% below the levels of a year ago.

On industrial production, Sinai said he was upgrading his estimate of growth for this quarter to almost 3%, while Ratajczak forecasts the beginning of a spurt to “near 4%” in the first quarter of 1986.

Wyss of Data Resources, however, called the industrial production number “a disappointment” and expressed concern over the retail inventory increase. “It looks as though the retailers are getting caught in the same trap as last year, when they were caught at Christmas with more than they can sell,” he warned.