Wholesale Prices Rise 0.4%, Led By Surge in Food Costs

Prices of finished goods increased 0.4% in October in response to an unexpected surge in food prices, the Labor Department reported Thursday, but the underlying rate of inflation at the wholesale level has subsided significantly since last spring.

Excluding a 1.4% increase in wholesale food prices, which reflected an unexpected 18.9% rise in the cost of fresh vegetables, prices for finished goods were unchanged last month, a further sign of a cooling economy.

With both food and energy costs excluded, the core rate of wholesale inflation was a scant 0.1% in October, or slightly more than 1% on an annual basis.

Although financial markets had expected a smaller increase in the producer price index, the significance of the food price spurt was quickly discounted by analysts.

Economists instead found in the October figures further evidence of a disinflation trend that has been in progress since the economy slowed last summer to an annual growth rate of about 2.5%.

That rate is about what the Federal Reserve believes is needed to keep inflation in check and nurse the long-running economic expansion to a soft landing. Earlier this week, the Fed allowed interest rates to fall in response to signs of economic slowing.

“Will this 0.4% increase make the Fed reverse its decision this week to loosen? Not a chance,” said economist Donald Straszheim of Merrill Lynch.

“Are there any warning signs here of faster inflation any time soon? The answer is there aren’t,” he continued. “We think it’s going to take a stronger economy than we’re seeing now to get the inflation rate to rise very much and that’s not in the cards for the next six months or so. . . . But what we are seeing is a soft landing, not a crash. The economy is slowing, not stopping.”

Despite a 0.2% increase in energy prices, after a 6.5% spurt in September, most of the key categories of wholesale prices showed slow or declining inflation last month.

Prices of capital goods dipped 0.3%, reflecting a seasonally adjusted 1.4% decline in auto prices in response to adjustments for new model prices and almost simultaneous manufacturer concessions.

Prices of intermediate goods and raw materials were unchanged.

“Capital goods, industrial equipment, intermediate goods and raw materials are all showing little or no inflation,” noted Stacy Kottman, an economist at Georgia State University in Atlanta. “So at this point there’s no reason to expect accelerated inflation due to cost pressures. And inflation from demand pressures doesn’t appear to be a possibility in the near future.”

The October figures restored a trend that had been interrupted in September, when finished goods prices jumped 0.9%.