Retail Sales Rise Slightly; Wholesale Prices Steady : Inflation at 2.5%, Is Expected to Stay Low

Wholesale prices held steady in November as declines in energy prices offset higher food prices, the Labor Department reported Friday, providing further evidence that inflation will continue to be low.

The unchanged price index followed a surprising 0.2% decline in wholesale prices in October and left inflation at the wholesale level running at 2.5% over the last 12 months. Though consumer prices have risen more quickly, economists said the pattern of wholesale price changes suggest that consumer price increases will be subdued.

“The fact that prices were flat, even outside of food and energy, and also that crude materials prices were down, are signs that no significant inflationary pressures are brewing,” said Martin Mauro of the Merrill Lynch investment firm in New York.

“This is another report that indicates that inflation is far less of a problem than (the Federal Reserve Board) and others fear,” said Roger Brinner of Data Resources of Lexington, Mass., an economic forecasting firm.

Seasonally adjusted wholesale food prices, which had fallen 0.1% in October, rose 0.3%, led by a 42% surge in the cost of vegetables. Lettuce prices alone rose 95.4% last month as bad weather and insect infestation devastated California’s iceberg lettuce crop. But the price of meat, fish and poultry all declined.

More significantly, energy costs overall fell for the third month in a row, though the 0.9% decline was not as steep as the 1% drop of October and the 3.7% decline in September. Natural gas costs declined most sharply, by 3.2%, while home heating oil prices rose 1.6% and gasoline prices edged up slightly.

At the same time, the cost of crude goods fell 1.7% overall, with the prices of wheat and hogs down most sharply. Another steep decline came in the cost of new automobiles, down 2.2% after a 1.6% rise in October.

‘Effusive’ Enthusiasm

The overall flat rate of wholesale inflation in November left the producer price index, which is not adjusted for seasonal differences, virtually unchanged, down 0.1 points to 298.1 in October. The index, from which the Labor Department computes monthly price changes, is developed from a 1967 base of 100, meaning that a selected basket of wholesale goods costing $100 in 1967 now costs $298.10, up from $290.70 a year ago.

In that period, consumer food prices moved up 0.6%, while energy costs climbed 13.2% and the price of other wholesale consumer goods increased 2.3%.

Because wholesale prices have increased only 0.1% in the last three months, some economists were almost effusive in their enthusiasm for November’s figures. “It’s looking very, very good,” said Michael Penzer, a senior economist at Bank of America. Penzer noted that while increases in energy costs pushed the wholesale inflation rate up sharply in the first half of the year, “that problem has gone away . . . . We’ve just had the pressure taken off us.”

But Penzer and other economists cautioned that, because the wholesale index does not take into account the price of imported goods, it may fail to predict inflation in consumer prices that occurs as the dollar’s weakness forces up the cost of imports.

While importers have absorbed some of the effect of the dollar’s decline by reducing their profit margins, they may soon have to pass along price increases to consumers, said Stacy Kottman, a researcher for Georgia State University’s economic forecasting project.

“As the dollar falls, we would expect--point for point--more impact in inflation than we have seen so far this year,” Kottman said. “But we don’t think it will accelerate prices to a significant level.”