Prices Rise 0.3% at Wholesale Level in Month
Wholesale prices rose a modest 0.3% in November, the Commerce Department reported Friday, helping to ease widespread concerns that a robust economy is generating accelerating inflationary pressures.
“Inflationary fears exceed inflationary reality at the present time,” said Donald Ratajczak, head of an economic forecasting team at Georgia State University in Atlanta.
So far this year, prices at the wholesale level are up at an annual rate of 3.8%. That is higher than last year’s overall 2.2% increase, but still well below what most analysts consider a danger point.
Nonetheless, policy-makers at the Federal Reserve remain worried that inflation is resuming a slow upward creep and they are likely to lean against future price pressures by continuing to nudge interest rates higher. Earlier this week, the Fed tightened monetary policy modestly in a move that pushed short-term interest rates up about 1/4 of a percentage point.
Meanwhile, a separate government report Friday suggested that higher interest rates have not yet begun to dampen the economy. Home building, which is one of the first sectors of the economy to weaken in response to tighter monetary policy, reached its highest level in seven months during November.
New houses and apartments were built at a seasonally adjusted annual rate of 1.56 million units, up 1.4% from the 1.54 million rate in October. The increase, the third monthly gain in a row, defied analysts’ expectations. The slight gain followed a strong 5.1% increase in October and a more modest 0.4% rise in September.
At the same time, housing permits--an indicator of future home building--edged up 0.1% to a rate of 1.52 million units, the highest level since June, 1987. In October, the number of permits soared by 8.8%.
On the inflation front, the increase in wholesale prices was led by a sharp jump in the cost of gasoline and home heating oil. But food prices were flat for the second month in a row as the effects of last summer’s drought continued to fade.
The November increase in producer prices, if it continued for 12 months, is equivalent to an annual inflation rate of 3.3%, suggesting to some that the worst price increases are behind us.
Current inflation fears are a “manifestation of tribal rites in Washington and on the New York financial circuits,” said Dirk Van Dongen, president of the National Assn. of Wholesaler-Distributors. “I don’t see inflationary psychology taking root, but Washington can talk itself into all sorts of things.”
The debate over whether higher inflation is ahead generally has split Wall Street from Main Street, with most business executives downplaying the threat but financial interests wary that Fed policy may not be tight enough to restrain a steady upward march in the price level.
The overall November increase left the producer price index for finished goods at 109.7, meaning that a basket of goods costing $100 in 1982 would have cost $109.70 last month. That is 40 cents above the October level.
The underlying rate of inflation, which exempts the volatile food and energy sectors, also posted a 0.3% gain last month. Prices rose fastest for prescription drugs, detergents, books and newspapers. They also were up sharply for fresh fruits and milk. Meanwhile, prices were down for automobiles and a wide variety of foods, such as beef, chicken, eggs, pasta and coffee.
Energy prices were up 1.2%, but Ratajczak predicted that the recent OPEC production accord will probably fall apart next spring, helping to keep commodity price inflation under control.