U.S. Wholesale Prices Dip 0.1% in November : Economy: The third drop in five months fuels hopes that the Federal Reserve will move to lower interest rates.
Prices of finished goods at the wholesale level fell 0.1% in November, the third decline in five months, the Labor Department reported Friday. The report provided more evidence that the U.S. economy is slowing dramatically and fueled hopes that the Federal Reserve may lower interest rates.
A sharp 3.3% drop in energy prices, following two consecutive months of higher gasoline and fuel oil costs, more than offset a 0.8% upward move in food prices last month, the department said.
Excluding food and energy prices, which tend to be more volatile than other wholesale goods, the core rate of inflation at the wholesale level was 0.2% in November and has averaged 4.2% over the past 12 months.
November’s figures normally would be taken as a welcome sign that wholesale inflation has settled down to a manageable level after spurting to an annual rate of 9.4% during the first five months of the year.
But analysts instead saw the report as yet another sign that the goods-producing sector of the American economy has slumped into virtual recession.
“On the price side, this is good news. It suggests inflation is coming down a little,” said Donald Straszheim, an economist with Merrill Lynch & Co. in New York. “But the reason is that the economy is weakening. We are getting the bitter with the sweet here.”
Straszheim noted that prices of industrial goods, such as primary metals and raw cotton, fell by a full percentage point or more in November after declining in the previous two months. Overall crude materials, excluding foodstuffs and fuels, were down 2.3%.
Although the figures indicate that the rate of inflation for finished goods is likely to remain low, they also signal that industrial demand is sluggish and production is likely to slump.
As if to underscore that point, the Federal Reserve Board said in a separate report Friday that industrial production, which declined 0.6% in October in the wake of the Bay Area Quake and the Boeing aircraft strike, increased an anemic 0.1% in November.
The troubled auto industry continued to decline, with auto and truck assembly running at an annual rate of 6.2 million, down 500,000 units for the month. But durable goods production rebounded 0.5%, after declines of 1.8% in October and 0.7% in September.
The Fed also reported that the operating rate of the nation’s factories, mines and utilities dipped 0.1 percentage point to 82.7% in November, the lowest rate since April, 1988. Capacity utilization fell 0.6 point in October and has dropped steadily from a 10-year high of 84.3% last December and January.
“There’s no inflation out there now,” said Donald Ratajczak, a specialist on price movements at Georgia State University in Atlanta. “The Fed has been tight most of the year and has done a good job knocking down commodity-based inflation. Now they should declare victory and back off.”
Before adjusting for normal seasonal variations, the producer price index stood at 114.8 in November, unchanged from the previous month. That means a hypothetical market basket of wholesale finished goods cost $114.80 last month, up from $109.80 a year ago and $100 in 1982, the base year.
