Moderate Wholesale Price Rise Hints at an Inflation Slowdown

Prices at the wholesale level rose a modest 0.2% in June after a similarly moderate 0.3% increase the previous month, signaling a slowdown in inflation, the Labor Department reported Friday.

Producer price hikes, which had accelerated sharply earlier in the year, have slowed since April, helping to alleviate concerns about a revival of inflation. Such a revival might have threatened to bring economic growth to a halt by forcing the Federal Reserve Board to slow the growth of the money supply and boost interest rates.

“There was a lot of overreaction earlier in the year about fears of runaway inflation,” Daniel Van Dyke, a senior economist at Bank of America in San Francisco, said. “Certainly among domestic producers, prices remain very much under control.”

For the first half of the year, wholesale prices rose at an annual rate of 4.5% after falling 2.3% last year. The increases were almost entirely due to rising energy prices.

“We’ll probably get another month of oil price increases in July, but after that we don’t see much additional inflationary pressure for a while,” said Stacy Kottman, an economist at Georgia State University.

After bouncing around for the first six months of the year, inflation at the wholesale level is expected to level out, producing an overall rate for the year of about 4%, analysts said. The modest June increase--which translates into a 2.9% annual rate--”is too good to last,” said Christopher Caton, director of forecasting at Data Resources Inc. in Lexington, Mass, “just as April’s 0.7% increase was too bad to last.”

Consumer prices are expected to rise somewhat faster, at a 5% rate this year, analysts say, after gaining just 1.1% in 1986. A major reason is that prices of imported goods have been increasing at a much faster rate because of the drop in the dollar’s value. A weaker dollar means that it takes more of them to buy foreign goods.

The June wholesale price level, White House spokesman Marlin Fitzwater said, is “good news, indicating that the economy’s underlying inflation rate is not accelerating. It’s a very good omen to see a pattern of continued low inflation with solid economic growth.”

Subtracting the effects of the prices of both energy and food, which tend to be much more volatile than other prices, wholesale prices rose only 0.1% in June after falling 0.2% the previous month.

Food price increases slowed last month, rising 0.5% after jumping 1.4% and 1.5% in the previous two months. Vegetable prices soared a seasonally adjusted 17.9%, but cost increases for beef, pork and fish moderated and poultry prices fell 6.2%.

Gasoline prices, however, jumped back up in June by 3%, a reversal of the 1.1% decline in May.

The level for all finished goods in the producer price index increased to 296.8 for June, compared with 288.9 one year earlier and 100 for the base year of 1967. That means that a selection of goods costing $10 in 1967 cost $29.68 last month.