Producer Prices Rise Sharply in January : Economy: The 1.8% monthly jump is the largest in 15 years. But analysts blamed weather-related shortages and high demand for fuel oil. The ‘core’ inflation rate still appears modest.
A huge but largely expected jump in fuel oil prices last month pushed up energy prices a record 13.6% and helped ratchet up wholesale prices 1.8%--the largest increase for a single month since the darkest days of the energy crisis 15 years ago, the Labor Department reported Friday.
Economic forecasters had widely anticipated a big jump in finished goods prices, however, and markets were calm. Analysts focused instead on a modest 0.1% “core” rate of inflation--a measure that excludes energy and food prices. This, they said, was more important than a price increase for finished goods.
This year, the fierce impact of early winter weather, which created soaring demand for heating oil and savaged fruit and vegetable growers, produced some startling price increases that quickly passed through to the wholesale level and will probably affect January’s consumer prices as well, to be reported later this month.
Wholesale heating oil prices soared 25.3% in January, gasoline jumped 16.7%, natural gas was up 3.2% and wholesale prices for fresh vegetables surged 58%.
But since the energy and food price jumps were caused by a textbook high-demand, short-supply situation, it is probable that the increases will quickly subside. Indeed, prices for crude oil, noted as up 5% for the month, have already fallen back on the spot market. Some economists expect wholesale prices to show some declines in coming months before settling to an annual inflation rate of around 4%.
Donald Ratajczak of the economic forecasting project at Georgia State University, Atlanta, sees a steady decline from the inflation peak scaled last month to a level notably better than 1989’s 4.8% inflation rate for finished goods.
“Despite this beginning disaster, we see producer prices moderating to about 3.8% for the year, which would be better than last year,” Ratajczak said. “We’re even going to see some negatives to correct this spike.”
The Georgia State group had correctly forecast not only the 1.8% wholesale price increase overall, but the much smaller 0.1% increase in the core rate.
Ratajczak conceded, however, that the “man in the street may feel differently, because he’s been paying these prices and feels anyhow that we economists are under-reporting inflation. I think we need to counter fears of very high inflation, because when you throw out energy and food, the numbers calm down a lot.”
Typical of the scare-mongering that Ratajczak spoke of was a statement Friday from Citizen Action, an advocacy group that says it speaks for consumers nationwide. The January surge in energy prices, spokesman Edwin S. Rothschild said, “is a foreshadowing of the future as far as energy prices are concerned.”
Irwin L. Kellner of Manufacturers Hanover, New York, was among the analysts who pointed out that the energy prices reflected in the report have already peaked. But he said that the modest 0.1% price increase for most other finished goods is nonetheless worrisome because it suggests a continued economic slowdown and may foreshadow a continuing profits squeeze in many industries. “Higher energy prices do hit most businesses, but most businesses are unable to pass along their higher costs,” he said.
WHOLESALE PRICES
Seasonally adjusted change from prior month Producer Price Index For finished goods: Jan. ’90 +1.8% Energy Excluded food and energy Source: U.S. Dept. of Labor
