Producer Prices Up 0.3%; Car Costs Cited

Food and new cars cost more in October, helping drive up wholesale prices by 0.3%, the Labor Department reported Friday, but economists said there is no serious threat of a revival of major inflationary problems for consumers.

The producers price index, the government’s tally of wholesale prices, rose for the third consecutive month. These costs affect prices in supermarkets and other retail stores after a lag of several weeks to several months, depending on the product.

‘No Cause for Alarm’

Although “the best news on inflation is probably over, there is no cause for alarm,” said Donald Straszheim, president of Merrill Lynch Economics Inc., the forecasting unit of the giant stock brokerage firm.

Few pressures exist to overheat the economy and drive up prices: There is plenty of excess capacity in factories and on the farms, and wages have been rising very slowly. Many economists believe that the cost of living will increase about 3% to 4% next year.

The Federal Reserve Board reported Friday that industrial output failed to show any improvement in October as cutbacks in auto production held back gains in other areas. The unchanged performance in October followed tiny gains of 0.1% in both September and August, leaving industrial output just 1.3% above the level of a year ago.

Lackluster Report

Analysts said the lackluster report showed that U.S. manufacturing, although no longer deteriorating, has yet to show any significant improvement.

Also Friday, the government reported a record-breaking 5% plunge in total retail sales during October. This, however, was a mirror image of September, when sales had soared 5.3%.

Automobile manufacturers offered extraordinarily low interest rates on car loans in September to help dispose of the remaining 1986 models. The incentives were removed in October, and car sales slowed.

A huge 18.8% decline in auto sales last month overshadowed modest gains in sales at department stores, groceries and restaurants, the Commerce Department reported.

But, despite the erratic movements in car sales, the general economy is growing at a modest pace.

“Careful analysis of both the retail sales and producer price pictures shows an American economy where consumer demand is strong, helped by low inflation and the steady creation of new jobs,” White House spokesman Larry Speakes said.

However, the expansion has not been strong enough to make a significant dent in the unemployment rate, which was 6.9% in October.

The relatively quiet behavior of the economy is forcing the Federal Reserve Board to worry more about growth and less about inflation as it regulates the nation’s money supply.

Plunge in Oil Prices

The threat of renewed inflation has been minimized by the drastic plunge in oil prices, creating hard times in the petroleum-producing states but reducing costs for all consumers of oil. Energy prices dropped 35% during the last 12 months, according to the Labor Department.

But economists believe that the biggest declines are over.

The recent increases in overall wholesale prices reflect a normal economic climate. The 0.3% rise in October followed gains of 0.4% during September and 0.3% in August.

“There is no reason to become fearful of inflation,” said Ronald Utt, associate chief economist for the U.S. Chamber of Commerce. After a big drop, prices of commodities--oil and the raw materials used by many industries--have now stabilized. “You can’t have deflation forever; we would be in big trouble if we did,” Utt said.

Meat, Fruit Prices Up

Wholesale prices rose last month for beef, veal and poultry. Fresh fruits jumped 20% in price. Coffee and pork cost less, and the price of eggs and fish dropped. Overall food costs increased 0.9%, compared with a decline of 0.2% during the previous month.

New car prices climbed 4.7% during October. Gasoline prices and heating oil costs dropped last month after rising sharply in September.

Prices rose modestly last month for clothing, shoes and household appliances.

The producer price index reached 290.5 last month. That means a selection of goods priced at $100 in 1967 cost $290.50 during October.