Wholesale Prices Edge Up 0.4% in September; Higher Energy Costs a Key Factor
Wholesale prices were driven up 0.4% in September by a spurt in gasoline and oil prices, the expected result of last summer’s production agreement by the Organization of Petroleum Exporting Countries, the Labor Department reported Friday.
The increase was the largest monthly jump since May, when wholesale prices rose 0.5%, but economists discounted the likelihood of renewed inflation.
If volatile food and energy prices were excluded, the wholesale price index for all consumer goods would have risen a scant 0.2% for the month--in line with what economists consider the natural “underlying” rate of about 2% a year.
“It shows that on prices, nothing is really happening outside those two cyclical factors,” said Douglas Handler, an economist with Wharton Econometrics in Pennsylvania.
Price Declines May Have Ended
Experts acknowledged that declines in commodity prices are probably over for the time being but predicted price stability for the next few months.
The 3.7% increase in the wholesale prices of gasoline and oil was the first significant upward movement in that category this year but still left those prices about 33% below their level a year ago. (Prices fell starting late last year after OPEC did away with production quotas and producers flooded the market with oil.) The September surge was partly offset by a 0.2% decline in food prices.
Handler noted that September’s price movements--energy up, food down--were the opposite of what happened in August.
But the reversal was expected because of the waning effect on food prices of the summer drought and the anticipated impact of the Aug. 4 OPEC agreement to limit oil production. The energy price jump is expected to show up at service station pumps this month.
Continuing Overcapacity
“Assuming OPEC can stabilize oil prices, we will see some upward pressure on all prices,” said Frantz Price of Chase Econometrics, a forecasting firm.
“But there is no need to hit the panic button yet,” he added. “A burst of inflation is unlikely,” he explained, in part because continued sluggishness in the economy will keep demand moderate and because continued overcapacity in basic industries will keep price increases at manageable levels.
During September, gasoline prices jumped 9.2%, after a 1.5% drop in August and a steep 19.3% fall in July. Fuel oil was up 7.7% after a 15.2% increase in August and a 17.2% drop in July.
Natural gas, which has been dropping steadily for months, was down 2.5%.
Price said the most that OPEC probably will achieve from its agreement is stabilizing prices near the $16-a-barrel level rather than pushing them anywhere near the $29 plateau that the producer cartel held as recently as a year ago.
Donald Ratajczak, whose economic forecasting project at Georgia State University specializes in price movements, agreed that serious inflation is no immediate threat. If oil prices stay near $16 a barrel, “then there should be few price changes for the next few months,” he said.
