Wholesale Prices Up 0.4% in Month; Production Steady : Government Reports Indicate Economic Growth Is Slowing
Wholesale prices rose a moderate 0.4% in September as a big drop in energy prices offset another drought-caused jump in food prices, the Labor Department said Friday.
The report, which several economists said slightly overstated prices of finished goods for the month, was accompanied by two other government economic reports that suggested that the economy’s growth is moderating, thus reducing upward pressure on prices.
The Federal Reserve Board said industrial production was unchanged for September, and the Commerce Department said retail sales, held down by reduced proceeds from car sales, slumped 0.4%.
“There’s still not much evidence that inflation is accelerating,” said David Wyss of Data Resources Inc. in Lexington, Mass.
Donald Ratajczak, a specialist in price movements who heads the economic forecasting project at Georgia State University, said: “If I were at the Fed looking at these numbers, I certainly wouldn’t be worried about overheating. I probably wouldn’t do anything.”
“The inflation scare earlier this year was unwarranted, a figment of the imagination of market watchers,” said Irwin L. Kellner, chief economist at Manufacturers Hanover Bank in New York. He predicted that interest rates would decline for the balance of the year.
At the White House, spokesman Marlin Fitzwater heralded the news as promising for the presidential election campaign of Vice President George Bush. “Overall, the economy remains strong and growing,” he said. “Inflation remains under control.”
Some Erratic Swings
September’s 0.4% increase in the wholesale price index followed rises of 0.6% in August and 0.5% in July.
The steady increase in the overall index masks erratic swings in wholesale food and energy prices. Wholesale prices for food rose a steep 1.2% in September after a 0.4% increase the previous month, while energy fell 3.3% after a 2.2% increase in August.
Excluding the volatile food and energy components, the wholesale price index jumped 0.6% last month, compared to only 0.4% in August. A strong apparent increase in the prices of cars and trucks contributed heavily.
Car and truck prices actually declined in the showroom, Wyss and Ratajczak said. But better inventory management by the nation’s automotive producers cut back on the scale of the end-of-model-year clearance promotions in late summer.
Thus car prices declined by less than the usual amount in September--and so, after seasonal adjustments, they appeared to rise. Cars were reported to have increased in price by 1.8%, while light truck prices were recorded as rising 1.7% and heavy truck prices as rising 1.5%.
The seasonal adjustment had a major impact on the wholesale price index as a whole. Before seasonal adjustment, the Labor Department said, prices for all goods other than food and energy actually declined 0.2%, contrary to the seasonally adjusted increase of 0.6%.
The index itself declined from 108.8 in August to 108.6 in September, before seasonal adjustment. That means a basket of items that cost $100 in 1982 would have cost $108.60 in September.
Other price index groupings in the Labor Department report suggested that wholesale price inflation likely would remain moderate for the near future. The price of intermediate goods increased 0.4%, the same as in August, and the price of crude goods, driven lower primarily by sharp declines in the spot price of crude petroleum, fell 0.5% after a 1.1% increase the previous month.
Taken together, said Dirk Van Dongen, president of the National Assn. of Wholesaler-Distributors, the price reports were “good news, well in the band of experience of the past few months. Perhaps the overriding conclusion is that there is no sign of inflationary psychology having any part in driving these price increases.”
In its separate report on industrial production, the Fed said a larger-than-usual seasonal decline in electricity consumption after an unusually hot August sent output by utility companies plummeting 4.3%. That kept industrial production unchanged for the month, the weakest performance in seven months.
Factory output, considered alone, grew a modest 0.2% after a 0.1% increase in August. Thus economists saw the report as a welcome sign of slowdown, rather than a warning that the economy has suddenly been brought to a screeching halt.
Similarly, the Commerce Department’s report of an unexpected 0.4% decline in retail sales reflected mostly a seasonally adjusted 1.9% tumble in auto sales--perhaps reflecting the paucity this year of late-summer concessionary sales, the same factor that distorted Friday’s price report. Without autos, retail sales were unchanged--a signal of slowing demand more than a warning of recession.