Energy Costs Push Wholesale Prices Up a Modest 0.2%

Higher energy prices, offset partly by lower food costs, boosted wholesale prices by 0.2% in August, the Labor Department said Thursday.

Although the figure was the first increase in three months, it was smaller than expected and modest enough to indicate that inflation remains in check.

This year’s wholesale price increases have been the lowest since 1986. Thursday’s report raised hopes that the Federal Reserve Board, if reassured that the inflation threat has waned, might cut interest rates to spur what has been a slow recovery.

The economy’s sluggishness was underscored Thursday with the Labor Department’s report that initial applications for unemployment benefits dropped only slightly during the week of Aug. 31, down by 1,000 from the previous week.

Analysts said the prospects for an interest rate cut probably will become clearer today, when the government releases monthly consumer price and retail sales figures.

“I’m still not of the opinion that easing is a foregone conclusion,” said Allan Levinson, an economist with the WEFA Group in Philadelphia.

The producer price figures released Thursday, he said, were merely “the first step in this two-day minefield the Fed needs to step through.”

Still, Wall Street clearly was encouraged by the news, and the Dow Jones average of 30 industrial stocks climbed 20.80 points to close at 3,007.83.

Excluding the volatile food and energy components from the produce price index, the underlying rate of wholesale inflation was 0.2% in August, unchanged from July.

August’s wholesale energy prices rose 1.8%, marking only the second monthly increase this year. Much of the increase was attributable to gasoline costs, which rose 4.6% after dropping by 5.5% in July. Home heating oil prices rose 4.7%, as they did in July.

Prices for residential natural gas dropped slightly, while electricity costs showed a slight increase.

Food costs, meanwhile, were down 0.4%, in further retreat from their dramatic increases earlier this year. August’s figure included lower prices for fish, fruits, vegetables, colas and pork.

The Bush Administration has continued to push for lower interest rates as a means of putting more steam into the sputtering recovery. While many economists say the economy turned up last spring, they are fearful that it could topple back into a recession.

However, the Fed’s central bankers are concerned that if they cut interest rates while inflationary pressures persist, the markets will lose confidence in government policies and long-term interest rates will rise. That would defeat the purpose of any easing in short-term credit.

Wholesale Prices Edge Up.

Producer price index for finished goods, seasonally adjusted change from prior month.

Aug., ‘91: +0.2%

July, ‘91: -0.2%

Aug., ‘90: +1.1%

Source: Labor Department