Rapid Wholesale Price Rises Underscore Inflation Fears

Wholesale prices continued to rise at a relatively rapid pace in May, underscoring fears that inflationary pressures may be intensifying, the Labor Department reported Friday.

Led by a sharp rise in food prices, the department’s overall index of producer prices jumped 0.5% during the month, following increases of 0.4% in April and 0.6% in March. Wholesale food prices soared 0.9% in May, more than double April’s 0.4% rise.

The continuation of a more rapid price rise in May confirmed a decided change in the inflation situation from earlier months. In each month for more than a year before March, wholesale prices either had risen modestly or declined.

Donald Ratajczak, chief economist for the Georgia State University Economic Forecasting Project, said that the step-up, while unsettling, did not portend a major new wave of inflation.

5% Inflation Seen

“You shouldn’t jump off a bridge just because we got a big increase in food prices,” he said, “but there are some signs that inflation is building up.” He predicted that recent price increases at the wholesale level would translate into an annual inflation rate at the consumer level of between 4.5% and 5% by the end of this year, up from 2.5% to 3.5% in the first six months of the year.

“We have a bulge to work through,” Ratajczak said--particularly in industries such as steel, plastics, paper and chemicals, which do not have sufficient production capacity to meet current demand.

Ratajczak noted that producer prices of capital equipment such as machine tools, which manufacturing firms buy when they want to increase their production capacity, rose 0.4% in May, following a 0.2% rise in April. “This isn’t the end of the line,” he cautioned.

The Reagan Administration sought to put a brighter face on the price figures. White House spokesman Marlin Fitzwater noted that, without the more volatile food and energy prices, wholesale prices of finished goods rose only 0.3% in May, in line with the performance of previous months. “Inflation remains low and under control,” Fitzwater said.

Little Reaction

Despite the mixed news on the price front, the financial markets barely reacted. In the stock market, the Dow Jones industrial average rose 8.36 points to 2,101.71, ending the week 30.41 points higher. Edward Guay, Cigna Corp.’s chief economist, said that investors had been expecting an even more bearish wholesale inflation report.

The sharp rise in food prices reflected steeper-than-usual increases in prices of pork, processed chickens, bakery products and fresh and dried vegetables. Prices of eggs, fish and confectionery products also rose substantially.

At the same time, prices of energy products slowed significantly over the month, edging up 0.2% after a 3.1% jump in April, largely because of a decline in natural gas prices. However, gasoline prices soared by 3.8% in May, after a 0.7% rise in April.

Producer prices for products used in the intermediate stages of production, such as chemicals, paperboard and wood pulp, rose 0.6% in May, slightly less rapidly than in April. And prices of crude materials--frequently a harbinger of where the overall index is headed--leaped 1.2% after a 1.3% jump in April.

The May increase brought the overall producer price index to 107.5% of its 1982 average--meaning it cost $10.75 to buy the same goods at wholesale last month that sold for $10 six years ago.

Over the last 12 months, the department said, producer prices have risen by 2%.