Economy Is Whipsawed as Prices Climb, Output Falls : Wholesale Index Rises at Annual Rate of 8.9%

Wholesale prices, with automobiles, meats and energy leading the way, rose at an annual rate of 8.9% in April and industrial production took its sharpest drop in 13 months, delivering two severe punches to the U.S. economy, the government reported today.

Wholesale prices jumped 0.7% in April, the Labor Department said.

Food prices, which had risen 0.5% in March after five months of decline, shot up 1.5% last month, largely because of accelerating meat prices.

Beef and veal prices rose 8.3% over the month and prices for pork skyrocketed by 13%. Processed poultry prices rose 3.1%.

Car prices climbed 2.4% after declining since December, largely due to rebates during the first quarter of the year by auto manufacturers.

Energy prices surged 2.1% in April, with gasoline up 2.3% and home heating oil up 1.8%. The increases were much larger than in March, but smaller than those in January and February.

Prices for consumer goods other than food and energy rose just 0.2%, one-fourth the 0.8% increase in March.

The bureau said wholesale prices have risen 2.7% over the year, with an average annual increase of 5.1% since January.

Despite the recent increases, energy prices are still 1.1% below what they were a year ago, when the world oil market was just beginning to recover from a collapse that had pushed the price of oil to a decade-low $11 to $12 a barrel.

Crude oil prices are now back in the range of $18 to $19 a barrel.

Prices Far Ahead of ’86

Consumer prices so far this year have been rising at an annual rate of 6.2% compared with an increase of just 1.1% for all of 1986, when price increases for most goods were masked by the giant drop in oil prices.

In the second discouraging economic report, the Federal Reserve said the 0.4% decline in industrial production last month was the second consecutive drop, following a revised 0.2% decrease in March.

Industrial output had not fallen for two consecutive months since late 1985. The April setback was the largest monthly decrease since a 1.4% decline in March of last year.

Cutbacks in production at auto plants were blamed for the weakness in the last two months, but the government said there were widespread smaller declines in other industries.

In April, autos were assembled at an annual rate of 7.2 million units, down from a March rate of 7.9 million units and a February pace of 8.3 million units. Auto makers have been cutting back sharply on production in the face of high inventories and slumping sales.

The output of consumer goods for the home fell for the fourth consecutive month while production of business equipment decreased 0.4% in April, led by a drop in output of transit equipment.

The April setback included a big 0.7% drop in production of durable goods, reflecting the cutbacks in autos, and a 0.1% decline in the output of non-durable goods, items not expected to last three years.