Wholesale Prices Climb 4% in 1988, the Highest Annual Rate of Inflation in 8 Years

Wholesale prices rose by 0.4% in December as inflation at the wholesale level hit 4% for 1988, the highest annual pace in eight years, the Labor Department reported Friday.

The government report showed wholesale prices ending the year on an accelerating trend. The broad range of increases in goods, while not unexpected by the financial markets, was greeted as an ominous sign by experts fearful of a resurgence of inflation.

“Pressure is clearly growing,” said Bruce Steinberg of the Merrill Lynch investment firm in New York. “You can still see signs of more increases in basic metal prices and industrial materials and not much sign of moderation. There’s plenty more reason here for the Fed to be concerned.”

Economists believe that the Federal Reserve soon may be prompted to push up interest rates to curb an inflationary spiral and keep the economy from overheating.

Food prices were virtually unchanged for the fourth month in a row, while energy prices, normally volatile, increased only slightly. But prices for most other finished goods were on an upward march and prices for all items other than food and energy in December advanced by a relatively steep 0.6%.

“If the core rate, without food and energy, is up to 0.6% in a month, that’s worrying,” said Steinberg.

The pattern of increases for the year as a whole was similar to December’s. Excluding food and energy, wholesale price inflation in 1988 was 4.3%, while all intermediate goods--such as industrial materials and partly finished components of consumer goods, leaped ahead 5.8%.

All these yearly statistics point to higher inflation in 1989 at both the wholesale level and the consumer price level, which in turn could force an upward ratchet on wages as well. The 4% increase in wholesale prices was the biggest December-to-December jump since a much steeper 7.1% increase in 1981, when the high inflation of the 1970s was still dominant.

Dirk Van Dongen, president of the National Assn. of Wholesaler-Distributors, found little cause for optimism in the December statistics.

He hailed as “good news” the relative stability in food and energy prices. But, in a statement, he warned that the soaring prices of commodities and industrial materials “should exert inflationary pressure on the index as these goods work their way to the consumer in the months ahead.”

Prices of crude goods, while up only 2.8% for the year, jumped 3.5% in December after a 3.1% decline in November. Copper and aluminum scrap jumped a steep 5.6% and 2.2% respectively in December, and both advanced just over 20% for the year. In addition, industrial materials fabricated from those crude commodities moved upward in similarly large steps.

“I imagine there are some furrowed brows at the Fed regarding these numbers,” Van Dongen said. “They point to a need to carefully monitor demand in the economy.”

Economists said, however, that concern should not yet turn into panic.

Stacy Kottman of the economic forecasting project at Georgia State University, which tracks price movements, said that there is still no sign of 1970s-style inflation on the horizon. He said aluminum, copper and industrial chemicals prices should level off, allowing wholesale prices to rise to perhaps 4.5% in 1989, but not much higher.

Similarly, David Wyss of Data Resources, Inc., in Lexington, Mass., said that he expects the economy to slow by spring, further moderating inflation. He, too, projected 4.5% wholesale inflation this year and consumer price inflation at about 5%.

Experts agreed that energy prices probably will move upward only gradually, though demand in the United States is beginning to accelerate faster than industrial output.

The December increase in wholesale prices left the producer price index for finished goods at 110.0, an increase of 0.3 point over the previous month. In other words, a hypothetical cross-section of goods costing $100 in 1982 would have cost $110 last month, 30 cents more than in November.

In a separate economic report Friday, the Commerce Department said that retail sales grew by a strong 6.7% in 1988, the biggest rate of increase in four years, in a brisk recovery from the temporary buyers’ slowdown that followed the 1987 stock market crash.