October Wholesale Inflation Held to Zero
Fear of war in the Persian Gulf jolted oil prices for the third straight month in October, but slowing economic growth held wholesale price inflation for non-food and non-energy items to zero.
The Labor Department said today that its producer price index for finished goods, one step short of retail, jumped a seasonally adjusted 1.1% last month.
That followed increases of 1.6% in September and 1.3% in August, bringing the annual inflation rate for the year so far to levels not seen in nine years.
Wholesale price inflation, on an annual basis, was 7% for the first 10 months of 1990, the highest since a 7.1% rise in 1981.
Even though the October number was higher than the predicted 0.7% rise, stock and bond markets rallied immediately after the report because prices outside the volatile food and energy sectors were unchanged. This so-called “core” inflation rate is considered a better indicator of long-term inflationary trends.
Traders took the absence of core inflation as a sign that the Federal Reserve Board will probably stimulate the economy with lower interest rates after its policy-makers meet Tuesday.
Economists are optimistic that despite the sharp rises of the last three months, inflation will remain under control unless war in the Middle East destroys Saudi Arabia’s oil-production facilities. The economy is simply too weak for most goods producers to pass on higher energy costs, they say.
In fact, the latest edition of a prominent survey of private economists said the nation will probably topple into a recession before the end of the year.
Blue Chip Economic Indicators of Sedona, Ariz., reported today that 44 of the 55 economists in its survey believe that a downturn will start before the end of 1990. Another three said the slump will start in 1991.
To symbolize the shift, the survey newsletter changed its nameplate from yellow to red for the first time since the 1981-82 recession.
“The climate is not going to be favorable for an increase in inflation,” said economist Robert G. Dederick of Northern Trust Co. in Chicago. “We’re in a bad inflation patch now but we’ll get through it.”
