0.7% Wholesale Price Rise Called One-Time ‘Blip’

Wholesale prices, which had been unchanged for almost a year, unexpectedly rose a sharp 0.7% in October, fueled primarily by higher costs for food, energy and automobiles, the Labor Department reported Wednesday.

Many economists acknowledged surprise at the increase and generally dismissed it as a one-month “blip” and not a sign that inflation had taken hold. Several conceded, however, that the news probably would prevent the Federal Reserve, the nation’s central bank, from reducing interest rates any further.

Analysts predicted that the consumer price index, scheduled to be released today, will show that retail prices also have risen, perhaps as much as 0.5%. But they said they expect that increase, like the wholesale prices jump, to be a short-term spurt.

“This was a seasonal adjustment problem, not a sign of renewed inflation,” said Irwin L. Kellner of Manufacturers Hanover Bank in New York. “It is at variance with the real world, where people are lowering prices to attract business. I don’t know of anyone who takes this seriously.”

But, he cautioned, there will be a real-world effect. “It will restrain the Fed, which won’t push (interest rates) lower again this year, even if it wants to.” The Federal Reserve, which lowered two key interest rates slightly more than a week ago, had indicated that no further reductions are likely through the end of this year unless the economy takes a sudden, deeper downturn.

The 0.7% increase in the producer price index, which measures inflationary pressures before they reach consumers, was the biggest advance since a 1.2% rise in October, 1990--an increase that was attributed at the time to a steep rise in oil prices after Iraq invaded Kuwait.

In the latest increase, a seasonally adjusted 1.7% rise in energy costs led the way.

The wholesale price index for finished consumer durable goods--items that last three years or more and range from books and home electronic gadgets to refrigerators and passenger cars--rose by an even faster 0.8%.

Food prices rose 0.4%, after a 0.5% decline in September, led by higher costs for beef, pork and chicken.

Prices for intermediate goods, primarily industrial materials purchased by manufacturers and processors who sell finished products to retailers, fell 0.1% and have dropped 3.2% over the last year.

“If you look at the intermediate and crude prices, you find no sign of inflation,” noted Donald Ratajczak of Georgia State University in Atlanta.

He speculated that “manufacturers have whittled inventories down and they seem to have kicked up some prices to get higher profit margins.”

But, he added, “That can’t last, because there is excess production capacity everywhere.” There is absolutely no sign, Ratajczak said, that the price increases in October were caused by a rekindling of demand in the struggling economy.

New car prices were up 0.5%, an increase that analysts said is unlikely to hold, given poor sales figures. Clothing costs were up 0.4%, another area where price rollbacks are expected, and prescription drug prices, which have been rising all year, were up a sharp 2.2%.

Sounding the common theme of the day, Bruce Steinberg of Merrill Lynch in New York, said: “It was a blip . . . but it was a blip in almost everything.” He noted the low inflation rate over the last 12 months--the best record since calendar 1986, when fuel prices crashed and producer prices fell 1.4% during the year, and said:

“When you have a string of good inflation reports, every now and then you have to expect a bad one. Every now and then, manufacturers have to cover some costs and raise prices.”

But, he added, “ . . . I don’t see inflation as a problem in the immediate future.”