Wholesale Prices Drop in Month as Cold Weather Eases
Wholesale prices fell 0.2% in March as energy and food costs descended from cold-weather high levels, the Labor Department reported Friday.
The 2.4% decline in energy prices last month helped compensate for the huge 13.6% surge in this category in January spurred by shortages in home heating oil. The 0.6% drop in food prices also reflected the onset of warmer weather.
The declines “are basically an expected offset to big increases earlier, and the core rate without food and energy is basically unchanged over the past five years,” said David Wyss, an economic analyst at Data Resources Inc. of Lexington, Mass.
Experts said the March levels show inflation continuing at a moderate rate as the economy continues to grow and avoid recession.
Excluding food and energy, inflation for finished goods was 0.3%--solidly within the 3.5% to 4% annual rate that has prevailed for the past few years.
“It’s a boring report, but if you’re a businessman, a little boredom sometimes is a blessing,” said Wyss. “To live in interesting times is not, in the old saying, a blessing. It’s a curse.”
The March dip in energy prices, combined with February’s even bigger 5% drop, still did not fully counterbalance January’s leap, which was the greatest in 15 years.
“We’ll get lower energy prices for a couple more months because crude oil prices are still falling,” said Donald Ratajczak, head of the economic forecasting project at Georgia State University in Atlanta. “But we’ll never get all of the way back down the mountain we climbed in January because underlying inflation is still going up. There’s no sign it’s accelerating--but there’s no sign it’s going to decline toward zero, either.”
Analysts saw a hint of good news in one particular increase--a 2% spurt in crude industrial materials.
Prices in this category had dropped 6.4% during the 12 months, reflecting sluggish manufacturing activity. The March uptick “seems to be an indication industrial activity is picking up, adding inflation at that level,” Ratajczak said. “We’ll have to keep an eye on that.”
Also supporting that impression was a 0.4% increase in finished industrial equipment. “That suggests the economy is alive and well,” said Allen Sinai, chief economist of Boston Co. “The capital goods prices mean increased capital investment has been happening, and capital spending plans for the future look solid. So that’s another solid sign of a growing economy, despite all the anecdotal evidence you hear of softness.”
Sinai noted that the continuation of moderate inflation at the wholesale level does not mean that retail inflation will remain moderate. The consumer price index, which measures those prices, includes services while the producer price index considers the prices of wholesale goods only. Service industries have experienced some of the most entrenched inflation.
Before seasonal adjustment, the producer price index fell by 0.4 point, or 0.3%, to 117 in March on a base of 100 calculated for wholesale prices in 1982. That means a hypothetical market basket of goods that cost $100 eight years ago would have cost $117 last month and $117.40 in February.
