Wholesale Prices Up 0.9% in Sept.; Fed by Energy Cost
Wholesale prices shot up 0.9% in September, fueled by a sharp rise in energy costs, the government said today.
The climb last month in the Labor Department’s Producer Price Index wiped out consecutive price declines of 0.4% in August and July and 0.1% in June.
The September reversal brought the annual wholesale inflation rate for the first nine months of the year to 5.1% and marked a return to the high inflation of the early part of the year.
Although wholesale inflation is not nearly as bad as feared after prices advanced at a 10.1% annual rate in the first quarter, it is still significantly higher than the 4% rate posted in all of 1988.
Contributing to the big September jump was a statistical glitch in the measurement of auto prices, which were skewed because manufacturers offered their end-of-the-model-year price incentives earlier in the summer than usual.
Actually Declined
When month-to-month increases were adjusted for normal seasonal variations, auto prices rose 3.8% in September. When seasonal adjustments are factored out, auto prices actually declined 0.5%.
Energy prices, which had fallen in June, July and August, shot up 6.5% last month. Fuel oil rose 16.3%, gasoline 10.6% and natural gas, 3.4%.
“We were due for a big rebound . . . after several months of declines,” said economist Allen Sinai of the Boston Co. “ . . . I would not be particularly alarmed about this one-month spike up given the seasonal effect in autos and the spike in energy, which will probably be a one-time event.”
According to a Labor Department analyst, roughly 0.8 percentage points of the 0.9% monthly rise in the inflation index was attributable to motor vehicles and energy.
In good news, the department said food prices dropped 0.6%. Vegetables were down 16.1%, turkeys 4.9%, pasta, 4.4% and beef, 4%. Prices for pork, fish, fruit and rice also fell.
Rate Cut Unlikely
Excluding the usually volatile food and energy categories, prices rose 0.7% in September after a 0.5% increase in August.
The cost of home furnishings, health products, magazines, floor coverings, tobacco and alcoholic beverages all rose.
The return of wholesale inflation in September was likely to dampen financial market speculation that the Federal Reserve Board would soon lower interest rates. Traders had been hoping that the central bank would cut rates to curb the rise in the value of the dollar, which is hurting U.S. chances to improve its trade deficit.
However, in a speech at a conference in Washington on Thursday night, Fed Vice Chairman Manuel H. Johnson said, “We have to focus our attention in monetary policy on domestic inflationary implications.”
The inflation news was not particularly encouraging in September measures of prices earlier in the production process.
