Inflation at Wholesale Level Drops in March

Inflation at the wholesale level declined in March for the fourth month in a row, the government reported Thursday.

The report heightened speculation that the Federal Reserve will push interest rates lower, which helped spark a 30-point surge in the Dow Jones industrial average.

The Labor Department’s monthly producer price index fell 0.3% during the month as price increases moderated across a wide range of sectors. The decline followed decreases of 0.6% in February, 0.1% in January and 0.6% in December.

Heartening to many analysts was that although the declines were concentrated primarily in energy prices, the “underlying” rate of inflation--which excludes volatile food and petroleum prices--rose only 0.2%, down from 0.4% and 0.5% respectively in February and January.

At the same time, however, the Commerce Department reported that retail sales fell a sharp 0.8% in March--the third decline in four months--as a pickup in consumer confidence failed to ignite a spending boom that might speed economic recovery.

In one upbeat development, the Labor Department said the number of new claims for unemployment insurance fell by 70,000 in late March after soaring to 543,000 the previous week--the highest level in more than eight years. But analysts warned that those figures are volatile.

Financial markets, clearly encouraged by the moderate inflation figures, pushed stock prices sharply higher Thursday. The Dow Jones industrials average closed up 30.95 at 2,905.45 in active trading of 197 million shares.

Investors hoped that the Fed would push interest rates down, perhaps as early as today, after the government publishes the monthly consumer price index, which provides a broader measure of inflation.

Some analysts were skeptical that the central bank would make such a move. But even so, economists were generally bullish about Thursday’s reports.

Donald Ratajczak, chief economist at the Georgia State University forecasting service, said that it is “too early to say we’re over the hill here” but that “there’s enough weakness . . . to suggest that commodity prices will be pretty calm for the next few months.”

And Lynn Reaser, an economist at First Interstate Bancorp in Los Angeles, also was optimistic. Reaser said the improvement in the March figures suggests that the higher inflation reported in January and February “was an aberration from the underlying trend.”

The March decline in retail sales levels was somewhat offset by a new revision showing that the increase reported for February was far stronger than estimated earlier. The update showed February’s gain at a strong 2%, rather than the 0.8% initially reported.

Irwin L. Kellner, economist for Manufacturers Hanover Trust Co. in New York, noted that even with the March figures included, the decline in retail sales has been abating since the depths reached earlier this year.

“The retail sales are better than this report looks,” Kellner said. “And the big drop in unemployment claims takes us back to the level of several weeks ago. So it’s not reasonable to expect the Fed to ease right now--though I’d still like them to.”

Before the usual adjustment to account for seasonal patterns, Thursday’s report showed the overall producer price index for finished goods at 120.6% of its 1982 average. That means it took $120.60 to buy the same goods at wholesale in March that cost $100 nine years ago.