Wholesale Prices Tumble Sharp 0.3% : December Drop a Promising Sign on Inflation Rate

Wholesale prices plunged 0.3% in December, the steepest one-month drop since July, 1986, the government said today.

The surprising decline in December was led by falling food and energy prices and provided a promising outlook for the U.S. inflation rate. Financial analysts had expected wholesale prices to show a slight rise in December.

The December drop followed stagnant wholesale price activity in November and a 0.2% decline in October.

For all of 1987, wholesale prices rose a modest 2.2%, reversing a 2.3% decline in 1986.

December’s decline in wholesale prices should help keep consumer prices from rising too sharply in the next few months. Many economists are concerned that the falling value of the dollar, which makes imported products more costly, will push the U.S. inflation rate higher.

4.3% Price Rise Seen

In its economic forecast released in December, the Reagan Administration predicted U.S. consumer prices would rise by about 4.3% this year after averaging about 4.7% for the first 11 months of 1987.

Wholesale gasoline prices fell 5.2% last month after edging up 0.2% in November. Gasoline prices for the year were up 20.6%.

Heating oil costs fell 5.1% after two monthly gains and rose 24.4% for all of 1987.

December’s declines reflected a 4.3% drop in crude oil prices, sending wholesale energy prices down 1.9% after a 0.9% November decline. Energy prices overall rose 10.2% in 1987.

Prices for new automobiles fell 1.6% last month after a 2.2% slump in November on pass-through rebates and other incentives offered to dealers by manufacturers.

Food Prices Fall

Food prices, meanwhile, fell 1.3% at wholesale in December after rising 0.3% in November. For the year, food prices were down 0.2%.

The December food price decline was paced by a 23.7% drop in egg prices, a 12.6% drop in pork costs and an 11% fall for fruits and vegetables, which had skyrocketed 42.6% in the preceding month largely because the California lettuce crop had been devastated by mold and bad weather.

In another positive economic report the government said today that industrial output rose 0.2% in December as American industry turned in its best performance since 1984.

The Federal Reserve said output at the nation’s factories, mines and utilities was up 5.2% in December over the production level a year ago, the best annual showing since a 6.2% increase in 1984.

Industrial production rose just 1.1% in 1986 as American manufacturers battled against heavy foreign competition. However, the weaker dollar in 1987 made American products competitive once again on overseas markets and strong foreign demand helped boost the fortunes of U.S. producers.