Wholesale Prices Increased a Modest 0.4% Last Month : Increase Modest in Spite of Jump in Home Heating Oil Costs; Inflation Fears Eased

Wholesale prices, despite a big jump in home heating oil costs, rose a moderate 0.4% in March as inflation eased somewhat after two months of steep 1% increases, the government said today.

The boost in the Labor Department’s producer price index reflected higher costs for both food and energy, although the increases in both categories were smaller than those registered in the first two months of the year.

The overall gain was close to analysts’ expectations and helped calm Wall Street’s inflation fears, causing a sharp rally in early trading today.

While March’s increase was much more restrained than the strong jumps of the previous two months, wholesale prices one stop short of retail have risen at a compound annual rate of 10.2% over the last three months.

Largest Since 1981

That is the largest quarterly increase since prices rose at a compound annual rate of 13.2% during the first three months of 1981.

Should the first quarter’s rate be sustained for the rest of the year, it would far exceed the increase registered for 1988, when wholesale prices rose 4% in what was the steepest gain in seven years. Prices had risen 2.2% in 1987.

Financial markets had been fearful that further bad news on the inflation front would prompt the Federal Reserve Board to step up its campaign to slow economic growth and restrain inflationary pressures by pushing up interest rates.

Dirk Van Dongen, president of the National Assn. of Wholesaler-Distributors, said the latest report was good news but doesn’t totally put to rest worries about accelerating inflation.

Battle Not Over

“I don’t think at all that this suggests that the inflation watch should be terminated,” he said. “I don’t think this battle is over.”

Wholesale food prices rose 0.8% last month after jumping 1.2% during February. Last month’s increase in food costs was led by a 38.8% gain in prices for eggs while vegetable costs dropped 11.6% after surging 35.3% during February.

Energy prices, meanwhile, rose 0.9% in March after a 2.4% increase during the previous month. Last month’s increase was led by a 16.8% rise in home heating oil prices, while gasoline costs rose 3.5% and natural gas prices declined 5.4%.

Excluding the volatile food and energy categories, prices rose 0.3% in March, down from a 0.6% increase a month earlier.

Despite the moderate price hikes last month for finished goods such as bread and clothing, the index for prices at earlier stages of production demonstrated stronger inflation.