Wholesale Prices Dip 0.2%, Retail Sales Rise 0.6% in February

The government reported Friday that wholesale prices fell 0.2% in February for the third decline in the last four months, easing fears that inflation may be on the rise.

Food costs, down 1.1%, and energy costs, down 0.8%, accounted for the bulk of the decrease, the Labor Department said.

Meanwhile, preliminary estimates by the Commerce Department showed that retail sales rose a sharp 0.6% in February, reversing a 0.2% decline in the previous month. The rebound was mainly in auto sales, which were buoyed during February by manufacturers’ discounts.

Retail sales in many other categories were either flat or increased only slightly. Department store sales declined 1.2%.

The combination of figures indicates that the economy is performing in line with most expectations, with no conspicuous signs yet of either a recession or an immediate revival of inflation.

Spending Boom Over

The financial markets reacted favorably to the new statistics as investors took encouragement from the signs that inflation was not intensifying. Bond prices rose somewhat just after the figures were published and bond yields declined.

Lawrence Chimerine, president of the WEFA Group in Bala Cynwyd, Pa., said the decline in wholesale prices shows that “future increases in consumer prices will be relatively modest. Today’s figures do not indicate any hyper-inflation.”

At the same time, Chimerine said, the retail sales figures “clearly show that the consumer spending boom is over and retail sales have flattened out. The only question is whether the growth rate will remain flat or whether there’ll be additional retrenchment that leads to a recession.”

However, Lynn Reaser, vice president and senior economist at First Interstate Bank in Los Angeles, warned that the wholesale price news may not be as encouraging as it seems on the surface.

When the volatile food and energy sectors are excluded, inflation at the wholesale level has been rising at a 4% annual rate, Reaser said--possibly pointing to higher inflation in the second half of the year. “What we’re seeing now is not indicative of the kind of inflation environment we will see later this year,” she said.

Reaser also read the February retail sales figures as evidence that “the consumer is coming back” and is beginning to spend again following the slump in sales after last October’s stock market crash.

Confidence Up

While conceding that much of the gain was in the volatile auto sales sector, Reaser noted that sales of building materials and furniture also rose smartly. “Confidence has improved substantially,” she said, “and will help to drive down some of the inventory imbalances we’ve seen.”

The wholesale price trend offset earlier fears that inflationary pressures may be mounting. In January, the index of producer prices had risen 0.4%, reversing two consecutive months of declines.

The February decline brought the index of producer prices to 105.9% of its 1982 average, meaning that it took $10.59 last month to buy the same goods at wholesale that cost $10 six years ago. The index now stands 1.7% above its level of a year ago.

The 0.2% decline in the overall index was for prices of finished goods. Wholesale prices of goods used in the intermediate stages of processing remained flat.