Annual Rate of 8.9% : Wholesale Prices Increase 0.7% in April

With meat, autos and energy leading the way, wholesale prices rose 0.7% in April to an annual rate of 8.9%, the government said Friday.

Meanwhile, major banks raised their prime lending rate by a quarter of a percentage point to 8.25%.

Coupled with a decline in industrial production, the rise in wholesale prices delivered what economists called a severe one-two punch to the economy.

The 0.7% jump in wholesale prices over March was the biggest one-month jump since October, 1985, and the 0.4% decline in industrial production was the sharpest monthly drop in 13 months.

“The combination of the figures presents a very negative picture of the prospects for the economy,” said Allen Sinai, chief economist for Shearson Lehman Bros., a New York investment house. “We have an inflation problem that is threatening to get out of hand.”

Donald Straszheim, chief economist for Merrill Lynch, agreed that both the Labor Department’s report on wholesale prices and the Federal Reserve’s new figures on industrial production “do not make very good reading.”

But both said that, although an inflation momentum is building, there is no immediate threat that it will return to the double-digit price increases of the late 1970s.

Combined with smaller monthly rises in the first quarter, the April increase in wholesale prices boosted the annual rate so far this year from 4.6% to 5.1%, according to Labor Department analysts. Wholesale prices last year fell by 2.5%, with the overall figures skewed by a collapse in the world oil market that cut crude prices in half.

Consumer price figures for April are not due out until the end of this week, but in March they also rose at an annual rate of 5.1%.

As for interest rates, Chase Manhattan Bank in New York was the first to announce the increase in the prime, a benchmark used to set rates on a range of other loans. Other banks quickly matched Chase’s move. The banks had last raised their prime rates from 7.75% to 8% just two weeks earlier.

The prime, which historically has affected corporate rates, has taken on greater significance for consumers in recent years because it is used to set interest on variable-rate credit cards, home equity loans and other consumer debt.

“It tends to be (a) follow the leader type thing,” said Philip Braverman, an economist at Irving Securities Inc. in New York. “Interest rates have moved up across the entire spectrum. The rise in the prime is part of that phenomenon.”

The prime increase pushed the rate to its highest level since July, 1986, when it dropped from 8.5% to 8%. The prime peaked at 20.5% in 1981.

The April increase in wholesale prices left the Bureau of Labor Statistics’ Producer Price Index at 295.0. That means goods costing $10 in 1967 would have cost $29.50 last month. It is 78 cents more than those goods would have cost in April, 1986.

The wholesale price index showed food prices shooting up 1.5% in April, following a 0.5% rise in March after five months of declines.

Finished meat products led the way. Beef and veal prices climbed 8.3% over March, pork prices skyrocketed by 13.1% and processed poultry rose 3.1%.

But fresh fruit prices dropped 11.1%, fish was down 6.7% and vegetable prices fell 1.2%.

Energy prices went up after easing slightly in March. But the 2.1% increase in April was smaller than January’s 9.8% and February’s 4% leaps.

Wholesale gasoline prices rose 2.3% in April and are now 14.2% above what they were a year ago. Home heating oil and natural gas prices, adjusted for seasonal variations, rose 1.8% and 2.7%, respectively. Despite the April increase, natural gas prices still are 15% below what they were a year ago.

Prices dealers pay for automobiles and light trucks rose 2.4% and 2.9%, respectively, as manufacturers ended rebates that had reduced them substantially the first three months of 1987.

The Federal Reserve’s figures on industrial production showed autos moving off U.S. assembly lines in April at a rate of 7.2 million a year, down from a March level of 7.9 million units and a February rate of 8.3 million.

Wholesale prices for home electronic equipment and furniture were little changed from March, when they rose considerably. The increase for non-food and non-energy consumer goods in April was just 0.2%, compared to 0.8% a month earlier.

“A lot of the gains came from just food and energy,” Michael Evans, a Washington economic consultant, said of wholesale price figures. “They will slow down by the end of the year and we’ll end up with an inflation rate of 5% to 6% for 1987.”

Of more concern to Evans and other economists was the Fed’s report that industrial production--led by the cutbacks at the auto plants but with widespread smaller declines in other industries--fell 0.4% in April after a revised 0.2% decrease in March.