Wholesale Prices Rise Modestly : Economy: Lower prices for a variety of products--from clothes to cars--help to keep the inflation rate in check.
Prices paid by wholesalers rose modestly in June as widespread declines nearly offset a run-up in oil costs, the government said Friday, a sign that the sputtering economy has removed most of the threat of inflation even as thousands of Americans have lost their jobs.
The 0.2% gain in the Labor Department’s producer price index was half the 0.4% rise in May. For the first half of the year, the index increased at an annual rate of only 2%.
A drop in prices for a wide variety of products--including tobacco, new cars, women’s apparel and computers--helped to keep price pressures under control, the Labor Department said.
“The good news is you need a microscope to see inflation but the bad news is you need a microscope to see economic growth,” said Ron Schreibman, vice president of the National Assn. of Wholesaler-Distributors, whose members pay the prices measured by the index.
In June, energy prices were up 2.3%, the biggest advance since October, 1990, when Iraq’s invasion of Kuwait was sending oil prices soaring.
But food prices rose just 0.2%. And excluding the volatile food and energy components, the index edged down 0.1%, the first decline in five years.
Economists said the mild inflation outside the energy sector is both a symptom of the extraordinarily slow recovery from the 1990-91 recession and an important condition for better economic growth later on.
“Low inflation . . . is about the only good news coming out of the weak economic environment,” said Mark Zandi of Regional Financial Associates in West Chester, Pa.
“It lays the foundation for stronger growth going forward,” he said. “It’s good for the profitability of most businesses. Producer prices reflect the costs that most businesses have to pay. If they’re not increasing, that goes right to the bottom line.”
The lack of inflation pressure has allowed the Federal Reserve to cut interest rates, in an attempt to stimulate business and consumer borrowing, with little fear of rekindling inflation.
Friday’s price report, according to analysts, offers no reason why the central bank cannot cut rates again if the economy weakens further. The Fed’s most recent cut came last week when it reduced its discount rate, the interest charged on its loans to banks, to a 29-year low of 3%.
Gasoline costs rose 7.4% last month after a 2% gain in May. Fuel oil prices jumped 9% after a 5.7% rise. Natural gas was up 1.6%, but residential electricity fell 0.8%.
Fresh fruit prices fell 10% in June, and vegetable prices tumbled 13.7%. Beef and veal were down 2.2% and pork, 4.2%. There also were drops in the cost of eggs, rice, turkeys and candy.
However, prices jumped 13.5% for fish and also were up for pasta, chickens, cooking oils, soft drinks and dairy products.
Tobacco prices, which had risen 7.3% in May, fell back 3.3% in June. Auto prices dropped 0.8% last month after a 0.5% decline the month before. Home electronic equipment fell 0.5%. Women’s clothing was down 0.4%.
Prices rose for footwear, tires, books and floor coverings.
The various changes left the producer price index for finished goods at 123.7% of its 1982 base of 100, 1.5% higher than a year ago.
Meanwhile, the National Assn. of Manufacturers predicted that growing exports and increased spending on business equipment will be the engines that drive the economy in the second half of 1992.
“We remain guardedly optimistic that gains in investment and trade will sustain activity in the second half, even in the face of chronically slow consumption,” said NAM President Jerry Jasinowski.
Jasinowski told a news briefing that NAM is forecasting economic growth of 2.5% this year and 2.6% in 1993, as measured by the gross domestic product. The GDP is the nation’s total output of goods and services.
The association originally had projected slow growth during the first half of the year, followed by a major pickup in the second as consumer spending and exports expanded simultaneously.
“Instead, consumption growth was ‘front-loaded’ into the first quarter, while exports increases have been slowed by weak demand overseas and will not come on line until later in the year,” Jasinowski said.
Consumer spending, which accounts for two-thirds of the nation’s economic activity, rose at an annual rate of 5% from January through March. The NAM forecast calls for increases averaging just 1.1% over the next three quarters.
“This does not reflect low confidence or other psychological factors, but rather slow increases in disposable income, excessive debt burdens and diminished real wealth caused by falling home equity values,” Jasinowski said.
“Without gains in other areas, there would be a serious risk that the recovery will stall out, much as it did in late 1991,” he cautioned.
Still, Jasinowski said “there was no support for a triple-dip” recession at a meeting of the NAM executive committee Thursday.
Instead of being consumer-driven, the economy in the second half of 1992 will be pushed by capital spending and exports, Jasinowski contended.
For all of 1992, NAM projects spending on business equipment will rise 5.8%.
“The main source of stimulus in the second half, however, will have to come from exports,” Jasinowski said. He projected exports will increase by more than 8% over the next six months, boosting 1992 growth by 5.8%.
In yet another report, the Commerce Department said U.S. retailers’ after-tax profits averaged 0.8 cents per dollar of sales in the first quarter, 0.6 cents a dollar below the preceding quarter.
However, average after-tax profits were 0.3 cents higher than the first quarter of 1991 during the Persian Gulf War, indicating that consumer spending started to pick up as the economy recovered.
The Commerce Department survey covers retail corporations with assets of $50 million or more.
Producer Price Index
For finished goods
Seasonally adjusted change from prior month June, ‘92: +0.2% May, ‘92: +0.4% June, ‘91: -0.2%
Source: Labor Department
