Wholesale Prices Up 0.4%, Signaling Inflation
Wholesale prices, driven by a jump in food costs, increased by 0.4% in March, the third straight monthly increase and a sign that the economy is entering a period of renewed inflation, the Labor Department reported Friday.
The report disclosed an acceleration in wholesale costs that will be passed through to consumers at supermarkets and other retail outlets after a lag of several weeks to several months, depending on the particular product.
4% Price Rise Seen
Economists generally agree that consumer prices will climb 4% or more this year. Many believe that last year’s minuscule inflation rate--along with a scant 1.1% rise in consumer prices--was a fluke caused by an unprecedented plunge in oil prices.
Last month’s 0.4% wholesale price increase was preceded by a 0.1% rise in February and a hefty 0.6% in January. In sharp contrast to those figures, wholesale costs declined 2.5% in 1986.
Wholesale food prices climbed in March after four straight monthly declines, reflecting a sharp rise in the costs of fresh fruits and vegetables. Baked goods, pork, beef and veal had lesser increases. The prices of fish and eggs fell.
Wholesale charges climbed for a wide variety of products, including pharmaceuticals, women’s clothing, carpets, linen and home electronics equipment such as television sets and stereo systems.
Energy costs dropped 0.2% after increases of nearly 10% in January and 4% in February. Gasoline and home heating oil prices rose only slightly, and natural gas costs fell a significant 1.5%, enough to drive the overall energy index down.
‘Too Soon to Panic’
Although this year’s figures so far are erratic, the price trend is clearly upward. “It’s too soon to panic, but the turmoil in the exchange markets has been scary,” said Donald Straszheim, chief economist for the Merrill Lynch brokerage firm in New York.
For American consumers, the falling dollar drives up the prices of all imports, from cars to wine to compact disc players. At the same time, domestic producers--feeling less competition--can increase their prices for such products.
For example, the Japanese share of automobile sales in the United States has fallen. As the dollar goes down, the value of the yen rises, forcing up the price of Japanese cars sold here.
“If Nissan loses, that helps Detroit,” said Jerry L. Jordan, senior vice president at First Interstate Corp. in Los Angeles. As import prices rise, competitive pressures on domestic companies slacken, enabling them to “improve their profit margins and raise prices,” he said.
An inflation rate in the 4% to 5% range this year would represent a return to the performance of the period from 1983 through 1985. This rate, although much higher than the extraordinary 1.1% of 1986, is politically tolerable, compared to the disturbing double-digit figures of the late 1970s.
‘Stable’ Inflation Rate
The basic inflation rate, once volatile items such as food and oil are excluded, runs at about 4% and “looks pretty stable,” said Michael Penzer, an economist with the Bank of America in San Francisco.
“Higher inflation is in the cards for this year, if for no other reason than recovery of oil prices and the decline of the dollar,” said James Christian, chief economist for the U.S. League of Savings Associations, a savings and loan trade organization.
Inflation becomes more apparent as the economy sees the impact of the dollar’s fall in relation to other currencies.
Prices for imported goods will rise substantially this year “and energy won’t be helping out,” said Kathleen Cooper, chief economist for Security Pacific National Bank in Los Angeles. The plunge in oil prices during 1986, cutting the cost of gasoline, fuel oil and the myriad of products using petroleum, virtually wiped out inflation by more than compensating for modest rises in other sectors of the economy.
Decline of Dollar
“How serious are things going to be?” Straszheim asked. “It depends on how much farther the dollar falls and how much of a decline foreign producers will absorb in their profit margins.”
The federal government measures wholesale price changes through its monthly producer price index for finished goods. The index reached 292.3 last month, meaning that goods priced at $100 in 1967 cost $292.30 in March.
