Cheaper Gas Drives Prices Down Sharply : Wholesale Index Falls 0.7% for Biggest Decline in 3 Years

Wholesale prices, driven downward by a huge drop in gasoline prices, fell 0.7% in January, their steepest drop in three years, the government said today. Coffee prices soared.

The 5.7% fall in gasoline prices, coupled with a 10.8% decline in heating oil costs, helped pull energy prices overall down 4.2% last month.

Cheaper gasoline prices, the result of collapsing worldwide crude oil prices, have already been posted at service stations nationwide. Analysts expect the price to fall even more steeply in the coming weeks.

Indeed, economists said falling energy prices should be a major factor in holding inflation at bay throughout 1986.

1st Drop Since December

The decline in the overall index was the first decline since September and followed a revised 0.5% rise in December. Not since January, 1983, have prices fallen at such a rate.

The gasoline and heating oil price declines reflected a 0.5% drop in crude oil prices. Gasoline prices, which last month fell at their steepest rate since March, 1983, had risen 2.8% in December.

Natural gas prices, one of the few to head upward, increased 0.5% in January.

Moderating the effect of the oil price collapse, however, was the prolonged drought in Brazil, which sent coffee prices soaring 17.4% after increasing 3.1% in December.

Prices fell for vegetables, poultry, beef, pork, veal and eggs. Vegetable prices, which had climbed 15.3% in December, largely because of cold weather in Texas, fell 9.7% in January, the Labor Department said.

Moderate Climbs

However, prices for confectionary products and fish climbed moderately.

Without the effect of food and fuel prices, the department said its Producer Price Index would have risen 2.4%, reflecting in part the higher cost of imports with the weakening in the value of the dollar.

The department offered these specifics on January wholesale price activity.

--Automobile prices fell 1.3%, reflecting low-interest auto financing packages offered by auto makers and not necessarily cheaper cars themselves. Light truck prices fell 1.6%.

--Alcoholic beverage prices rose 0.2% while soft drink costs were up 0.3%.

--Clothing prices fell overall, with children’s and infants’ apparel showing the sharpest decline, 0.8%.

--Prescription drug prices rose 2.9% while over-the-counter preparations rose 0.9%.

Business Stocks Down

In another report today, the Commerce Department said U.S. businesses trimmed their stocks slightly at the end of last year as inventories contracted 0.1% in December.

The small decline, the first drop since August, coincided with a sharp 1% increase in sales.

Separately, the Federal Reserve Board reported that U.S. industrial production rose 0.3% in January, half the gain posted in December, but the third consecutive month the index has improved.