Wholesale Prices Up Moderate 0.4% : Slide in Gasoline Costs Offsets Sharp Increases for Food

The biggest gasoline price decline since January offset a sharp, drought-caused rise in food prices as inflation at the wholesale level rose a moderate 0.4% in September, the government said today.

Food prices skyrocketed 1.2%--three times the August rate--and gave notice to consumers that the effects of the summer drought have not played themselves out.

Much of the momentum for the gain in food costs came from escalating beef prices as producers ended the herd liquidations that had depressed prices earlier in the drought cycle.

Lower Energy Prices

Countering that was a 3.3% drop in energy prices, which reflected declines for all major fuels. Gasoline prices, up 3.8% in August, fell 3.3% last month. Natural gas prices fell 2.5% in September; home heating oil costs were down 4.6%.

Labor Department analysts said these declines--which sent energy prices down at their steepest rate since January--reflected the current battle among oil-producing nations over production quotas.

The 0.4% September increase in prices for goods one step short of the retail level represented a moderation from the overall 0.6% August advance.

The September gain translates to an annual rate of 4.5%. For the first nine months of 1988, wholesale prices rose at an annual rate of 4.3%, nearly double last year’s 2.2% gain.

Benefit From Glut

Many private economists believe that Americans will benefit from the world oil glut and say that for all of 1988, inflation will average around 3.4%.

“The basic balance is fairly clear. We have lower energy prices offsetting higher food prices,” said David Wyss, an economist with Data Resources Inc. of Lexington, Mass.

Wyss said falling energy prices, along with a slowdown in the general economy, should help put a damper on inflationary pressures for the rest of the year.

The wholesale price report showed higher prices for a variety of goods, not all of which were the result of the drought.

Fruits, Vegetables

In addition to the 4.2% gain in beef prices, fruit costs jumped 10% and vegetable prices jumped 16.5%. Prices also rose for coffee and dairy products, both up 1.5%.

Prices fell, however, for eggs, down 8.5%, pork, 4.2%, and rice, 3.6%.

Department analyst Craig Howell said beef prices should rise through the coming months as depressed supplies keep costs high.

Another factor pushing prices higher in September was a 1.8% increase in new automobile prices. Analysts said this reflected lower end-of-the-model-year incentives to buyers than would normally be the case.