Wholesale Prices up 0.6% in August : Increase Not Extreme Without Volatile Energy, Food Costs

Wholesale prices jumped 0.6% in August, matching the highest monthly inflation rate this year, the Labor Department reported Friday. The summer-long drought pushed food costs up while energy prices spurted 2.2%.

Analysts and the financial markets, however, took the sharp increase in stride. Economists noted that in recent weeks, energy prices have plunged again in the wake of the Iran-Iraq cease-fire in the Persian Gulf. Without the volatile factors of food and energy, wholesale price inflation was only 0.3% in August, contrasted with a much more ominous 0.6% the month before.

Seen as ‘Very Tolerable’

“That 0.3% is very tolerable in absolute terms, and it’s exceptional given the robustness of the economy and the continuing crunch in manufacturing capacity,” said Dirk Van Dongen, president of the Washington-based National Assn. of Wholesaler-Distributors.

Cynthia Latta, an analyst at Data Resources Inc. in Lexington, Mass., said that “from a longer-term view, it’s the 0.3% inflation, excluding food and energy, that’s important.”

That moderate level is not expected to increase pressure on the Federal Reserve Board to raise interest rates to curb inflation.

“It looked earlier in the summer that we were facing accelerating inflation. This tells us that Fed tightening over the past year is probably paying off,” Latta said.

‘Markets Went to Sleep’

After declining more than 15 points in early trading, the Dow Jones Industrial Average ended the day up 5.69 in quiet trading. “It was a non-event,” Irwin L. Kellner, chief economist at Manufacturers Hanover, New York, said of the report. “The markets yawned and went back to sleep.”

The drought pushed up August food prices by 0.4%, the same as in July. Declining beef prices, caused by distress slaughter of herds, was more than offset by higher prices for eggs, fruits and vegetables, poultry and pork. Higher beef prices are expected by winter as the depleted herds cause future shortages, said Donald Ratajczak of the Georgia State University economic forecasting project.

Ratajczak said energy prices, paced by monthly inflation of 3.8% for gasoline and 3.6% for natural gas, will decline as the formerly warring states of Iran and Iraq expand petroleum production to rebuild their economies and other Gulf producers try to keep pace. Crude oil prices have fallen steadily recently and many industry analysts expect further drops through the rest of the year.

“The 0.3% without food and energy is a calm level,” Ratajczak said. “Everyone assumes energy will reverse” in next month’s report on September prices, “so this report is not that bad. In fact, I’d be surprised to see numbers near this (overall) 0.6% for the remainder of the year. It should be calmer the next few months.”

Other components of the wholesale price index, which before seasonal adjustment rose 0.3 to 108.8 in August from a base of 100 in 1982, showed moderating inflation after the report for July, which saw big increases for most consumer goods.

Car Prices Rise 0.3%

Prices for passenger cars rose 0.3%, contrasted with 0.5% in July and a much steeper 1% in June. Prices for men’s clothing declined 0.4% after a 0.9% increase in July, and women’s clothing was virtually unchanged at 0.1% higher. Overall, consumer goods other than food and energy rose 0.3% for August, contrasted with an ominous jump of 0.9% a month earlier.

But continued investment by the nation’s booming manufacturers pushed up the price index for capital goods by 0.4%, after only a 2.5% rise over the past 12 months. Factory equipment, led by a 1.6% increase for metal cutting equipment, was up across the board.

The capital goods inflation, Van Dongen noted, “is a product of a booming economy, and that’s good news, not bad. The demand for capital goods in the long run should help ease the squeeze on manufacturing capacity.”

May Pose Danger Signal

But Ratajczak warned that the inflation for capital equipment would pose a danger signal if it persisted, since that category is an indicator of future increases in the cost of production generally.

Other predictors of future inflation for finished goods showed mixed signals, however. Intermediate goods as a group rose 0.4%, as did intermediate goods without the volatile food and energy factors. But raw materials jumped 1.1%, after a like decline in July, and crude materials excluding foods and energy rose 0.9%, after a steep 1.9% increase in July.