Wholesale Costs Rise 0.6% as Oil Prices Climb 9.9%

Energy prices jumped 9.9% in January, the biggest one-month oil price surge since OPEC’s heyday in the ‘70s, pushing wholesale prices up 0.6% for the month, the Labor Department reported Friday.

The January jump, after a year in which wholesale prices dropped 2.5%, reflected the recent production and price agreement of the Organization of Petroleum Exporting Countries.

Although oil prices are expected to level off soon, economists said they see clear signs that the long-awaited impact of the weaker dollar will start pushing other prices up across the board, at least moderately.

At the same time, the weaker dollar, which has the effect of driving up the prices of foreign imports, was providing good news for American manufacturers.

A Federal Reserve report showed that industrial production rose a healthy 0.4% in January--a signal that manufacturing is beginning to recover from losses to foreign competition and that the trade deficit may at last start dwindling.

For industry, “this is a very strong report,” said analyst David Wyss of Data Resources Inc. in Lexington, Mass. “It means American industry is becoming competitive again, with more sales abroad and with some domestic production replacing the imports.”

The January jump in wholesale prices was the biggest since December, 1985.

Even if volatile energy and food prices were eliminated from the index, inflation would still have been about 0.4%. Rising markedly were the wholesale prices of imported manufactured goods, according to another set of Bureau of Labor Statistics figures. Reflecting the dollar’s slide, those prices rose at a 9% annual rate in the last half of 1986, contrasted with 2.2% from January through June.

Economists generally agreed that both January’s wholesale price increases and the rise in production were slightly larger than expected.

Steep Increase

“We had expected to see some of the higher petroleum prices in December, but, instead, it all showed up at once in January,” Wyss said, noting that the one-month increase was the steepest since 1974, when the OPEC cartel was enforcing the first of the massive “oil shocks” that ravaged the world economy during the 1970s.

Today, few economists think OPEC can do much more than hold its present price level of $18 a barrel, which suggests that oil prices should have less impact on wholesale price levels in coming months.

“The 7.7% annual inflation rate we saw in January is not in the cards for all of 1987,” said Kathleen Cooper, chief economist at Security Pacific National Bank in Los Angeles. “We should see lower rates for the next few months. It looks terrible, but it won’t continue.”

However, some inflation is expected.

Stacy Kottman of the economic forecasting project at Georgia State University, which specializes in price movements, warned that wholesale food prices, down 1.8% in January, would probably rise in February.

But Kottman predicted that wholesale price inflation would be moderate for the whole year, with prices rising about 2.5% between now and next January, contrasted with a 1.5% drop between last month and January, 1985.

The industrial production increase included a strong 0.6% increase in goods manufacturing and 0.5% increase in output of consumer goods. This, Kottman said, reflects “a lot of what we have seen in the recent strong employment reports and December’s strong consumer spending.”

A separate Commerce Department report Friday said that inventories in December declined 0.5%, while sales jumped 2.9%, inevitably setting the stage for the production increases recorded in January.

Record Trade Deficit

Hailing the expected improvement in the trade deficit, which closed last year at a record $169 billion, Wyss noted that exports of U.S. goods rose steadily at an annual rate of 20% in the last six months.

The January Fed statistics “confirm a turn in our trade position, as people buy more, relatively, from the United States,” Security Pacific’s Cooper said.

The Fed’s index of industrial production for January increased 0.5 points to 126.9, meaning that total output is 126.9% of the level attained in 1977, the base year.