Wholesale Prices Show Biggest Drop in 3 Years

Plunging oil prices drove inflation at the wholesale level down 0.7% in January--the biggest one-month decline in three years, the Labor Department reported Friday.

The dip, also due to a 0.4% decrease in food prices for the month, was the sharpest since producer prices fell 0.9% in January, 1983. It followed three consecutive months of substantial increases.

The Bureau of Labor Statistics report showed that wholesale prices, adjusted for seasonal variations, stood 1.4% higher than in January, 1985.

The cost of energy products dropped 4.2% after a 0.6% increase in December, reflecting a $7-a-barrel decline in posted U.S. crude oil prices since the first of the year. Gasoline prices dropped 5.7% after rising more than 3% in the two previous months.

Cost in 1967

The department said the index for January moved down to 296.2, equivalent to the cost of $296.20 for goods that cost businesses $100 in 1967.

Economists had not expected the effect of the oil prices--now at $19.50 a barrel--to show up so soon in the inflation figures, but they said lower energy costs will now continue to push wholesale prices down through the first half of the year.

The White House said the figures prove that the economy is growing “more robust with each passing month.”

Noting that wholesale price declines “normally signal an accompanying fall in consumer prices,” spokesman Larry Speakes said: “Signs of good news are to be found in every part of the economy. The stock market and other leading indicators post new highs almost daily.”

Analysts Optimistic

Private analysts also were optimistic.

“The picture looks good; inflation is under control, said Dorothea Otte of Georgia State University’s economic forecasting project. But she said prices of manufactured goods will start to rise as a weaker dollar brings more U.S. products onto the market.

“On the balance, we’ll still have low inflation for the year,” said Larry Chimerine, chairman of Chase Econometrics in Bala Cynwyd, Pa. His firm expects producer prices, which rose 1.8% in 1985, to gain 1% in 1986.

January’s 0.7% drop in overall wholesale prices came after an 0.5% rise in December, a 0.7% gain in November and a 1% increase in October.

Index Unchanged

The index for consumer goods other than foods and energy was unchanged in January, after a 0.2% increase in December.

Although wholesale food prices were down, roasted coffee soared 17.4%, continuing its upward climb due to a severe drought in Brazil that destroyed 40% of the crop.

Prices for meat and poultry dipped even more than in December, due to warm weather in the Farm Belt. The cost of fresh vegetables, which climbed 15.3% in December, turned down 9.7%. Egg prices also fell.

The cost of factory and business equipment, which makes up 21% of the producer price index and usually rises in the first month of the quarter, inched down 0.1% in January, helping hold down the overall index.

Gas Cost Rises

Wholesale fuel oil prices plunged 10.8% after gaining 2.8% in December and 7.7% in November. The cost of natural gas, however, rose 0.5% after two months of decreases.

Raw material prices fell 1.4% in January after decreasing 0.5% in December. Labor said the quickening decline was due mainly to the price of raw foodstuffs, which dropped 2.6%. Prices for turkeys plunged a record 33.2%.

The index for crude energy materials rose 0.1% overall after falling 0.5% in December, but crude petroleum prices declined after three months of increases.