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Wholesale Increases Hike Inflation Fears : Back-to-Back Monthly Hikes Worst in 8 Years

From Associated Press

Wholesale prices surged 1% in February, matching the January increase and marking the worst back-to-back news on inflation in nearly eight years, the government said today.

The identical increases in the Labor Department’s producer price index mean that prices one stop short of the retail level are 12.6% higher, on an annual rate, than at the start of 1989.

Not since March and April, 1981, have prices risen so sharply for two months in a row. Wholesale prices rose 4% for all of last year.

Stock and bond prices tumbled after today’s report triggered renewed fears that the Federal Reserve Board will push interest rates higher in an attempt to tame inflation.

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That would increase the government’s cost of financing the $2.7-trillion national debt, which would be bad news for President Bush, who is trying to trim the budget deficit without raising taxes.

Bush, speaking to reporters as he returned to Washington from Colorado, said his Administration will “always be vigilant against inflation (and) never relax our concern.”

Hears ‘Clarion Call’

He said the best way to beat inflation would be an agreement with Congress to reduce the deficit and called today’s report “another clarion call to do something.” Negotiators from Capitol Hill and the White House will exchange proposals next week on bringing down the deficit.

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After the January inflation report, which included a 0.6% rise in the consumer price index, the largest in two years, many economists dismissed it as at least a partial aberration and predicted only a moderate 0.4% climb in February.

With the latest report, “it’s difficult to put a happy face on it,” said Undersecretary of Commerce Robert Ortner. “There’s no other interpretation that can be put on it other than it shows a pickup in inflation.”

Prices in both January and February were pushed up by soaring energy and food prices, but the cost of other items, which are generally more stable, increased at a worrisome rate in February as well.

Wholesale food prices rose 1.2% last month, the steepest increase in 13 months. They had risen 1.1% in January.

Meat and most other food items rose, while eggs dropped 15% after rising 20.1% in January. Food prices were led by a 35.3% increase in vegetables, including a huge 158% rise in tomato prices.

Beef Increases Expected

Economist Donald Ratajczak of Georgia State University said beef prices should continue to rise through the spring, until ranchers can rebuild herds that were culled by extra slaughtering during last summer’s drought.

He said fruit prices will continue to rise, at least temporarily, because fruit grown domestically in hothouses is more expensive than Chilean fruit held off supermarket shelves until next week because of the cyanide scare.

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Energy prices jumped 2.4% overall in February, following a 4.9% increase a month earlier. The latest surge was led by a 4.1% rise in gasoline prices.


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