Food, Energy Declines Hold Inflation to 0.2% : Wholesale Prices Rise for Tobacco, Automobiles, Clothing, Furniture, Drugs, Household Goods

Declining food and energy prices helped hold wholesale price inflation to a modest 0.2% in June, despite a worrisome jump in the cost of other items, the government said today.

The rise in the Labor Department’s producer price index for finished goods one stop short of the retail level followed a rise in May of 0.3%.

It brought wholesale inflation for the first half of 1990 to an annual rate of 3.7%, compared with 4.8% for all of 1989.

The number was about what economists anticipated. However, prices for items outside the volatile food and energy sectors jumped 0.6% in June, the steepest increase in a year and about double the expected rise.

Analysts consider this so-called “core” rate a better indicator of underlying inflation pressures in the economy. However, the jump follows a string of five moderate rises of 0.3% or 0.2%.

Another report today showed retail sales, bolstered by a big jump in department store sales, shot up 0.5% in June, posting the first increase in five months.

At the White House, spokesman Marlin Fitzwater said the Administration is pleased with the figures.

“Inflation has been steadily declining since the first of the year, confirming our conclusion that the January price increase was indeed temporary. This is excellent news for the economy,” he said.

Wholesale prices rose for tobacco, 3.2%; passenger cars, 2.3%; women’s clothing, 0.5%; furniture, 0.5%; jewelry, 0.9%; newspapers, 0.5%; over-the-counter drugs, 0.8%, and household flatware, 2.3%.

Tobacco prices are now 13.9% higher than a year ago. Automobile costs rose after months of generally flat or falling prices.

Energy prices, which skyrocketed 13.7% in January because of a severe cold snap, have declined every month since. They were down 0.9% in June after dropping 1% in May. Fuel oil fell 10.5% and gasoline was down 1.3%. Natural gas costs rose 0.4%.

Food prices headed lower for the third time in four months. They dropped 0.4% last month after a 0.6% increase in May.

Prices for both fresh fruit and eggs jumped 6.7% and vegetable prices rose 2.5%. But, prices fell sharply for pasta, 7.4%; pork, 3.4%; chicken, 5.8%, and fish, 14.7%.

The fairly stiff increase in prices excluding food and energy could put a crimp in Federal Reserve plans to lower interest rates. The Fed attempts to quell inflation by slowing demand with high interest rates.

The inflation news was better at earlier stages of the production process with prices falling 0.2% for intermediate goods and 2.4% for crude goods. Excluding food and energy, intermediate prices edged 0.1% lower and crude costs fell 0.6%.

An example of the three processing stages would be loaves of bread for finished goods, flour for intermediate and wheat for crude.

Consumer prices have been rising faster than producer prices. That is because half of the prices contributing to the consumer index are for services, which are not measured directly by the wholesale index.