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Wholesale Prices Up 0.3%; Inflation Fears Discounted

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Times Staff Writer

Wholesale prices edged up 0.3% in August, the Labor Department reported Friday, but the increase was considerably less than anticipated by nervous financial markets, where fears of a return to inflation were blamed in part for Thursday’s record Wall Street sell-off.

Economists noted that most of the increase--only the second this year--was accounted for by a 1.3% rise in food prices, a volatile component, which more than offset a small decrease in energy prices. If food and energy were removed from the index, the increase would have been a scant 0.1%, scarcely a sign that renewed high inflation is just around the corner.

Before seasonal adjustment, the producer price index rose to 288.3, meaning that a cross section of wholesale goods costing $100 in 1967 cost $288.30 in August.

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Retail Sales Rise

In a separate report, the Commerce Department said that a strong 3.2% upsurge in auto sales, sparked by the new round of cut-rate financing in the motor industry, helped push up retail sales by 0.8% in August. That was the biggest advance in four months, but it was far below the 2.5% sales expansion widely rumored in Wall Street on Thursday.

A producer price index increase of 0.5% to 1% was also widely rumored Thursday, and the more moderate price increases actually reported by the Bureau of Labor Statistics were generally greeted by economists as a welcome sign that an inflationary burst is not likely for the time being.

“Retail sales were not as strong as rumor feared (because growth in retail sales could signal rising interest rates), and inflation (is) not at any worrisome level,” said Irwin Kellner, chief economist for Manufacturers Hanover in New York. “But, of course, you can’t just tell that to the market and expect anyone to listen.” In another day of wild stock market trading, the Dow Jones average fell an additional 34.17 points Friday.

Citing the increasing likelihood that energy prices have stopped their yearlong slide and will now stabilize at levels lower than at the beginning of 1986, Kellner concluded: “Inflation is back, but not at any level that should cause great concern.”

“The inflation report was another good one, with still-lower energy prices driving the index down, but countered by food prices,” said Allen Sinai, chief economist for Shearson Lehman Bros.

But, he added, “the result without energy and food is the important figure: up only 0.1%. So inflation showed up as still subdued, with no signs of the surge the financial markets feared.”

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In the next few months, Sinai said, he expects the recent bottoming out in crude oil prices to cause energy prices to rise, especially gasoline and fuel oil prices, “so the energy component should bounce up next month. But the odds are that food price increases will soften and other commodity prices should remain steady.”

Sinai said that he looks for wholesale prices to rise between 0.3% and 0.6% for the next couple of months before leveling off and stressed that he now puts the underlying rate of inflation in the economy at no more than 3% to 3.5% a year.

Donald Ratajczak, whose economic forecasting project at Georgia State University specializes in price movements, also found basic reassurance in the wholesale price report. He too noted the volatility of the food price increases and predicted that the 1.3% August jump in that component eventually would tail off.

Indexes Decline

Ratajczak noted that the price indexes for crude and intermediate goods, which often predict wholesale price movements, declined 0.2% and 0.1% respectively in August. He predicted that, if crude oil prices stabilize near the present $15 or $16 a barrel, the energy component probably would push up wholesale prices 0.3% to 0.4% in September and 0.2% in October, followed by no change at all in November.

“There was a growing fear of inflation in the markets that this report doesn’t justify,” he said. “This isn’t a report that says inflation is about to become a major problem in the United States.”

Ratajczak added: “This report says price stability, not inflation and not deflation. Why are people getting so upset just because the deflation of the past seven months is slowing down?”

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