Reports Ease Inflation Fears : Economy: Falling food costs keep wholesale price rise to just 0.2%, and retail sales drop. Interest rates should stay down.
Wholesale prices rose a scant 0.2% last month and retail sales dropped 0.5%, the federal government said Friday, easing fears that inflation is heating up and taking some of the pressure off the nation’s central bank to raise interest rates again soon.
Falling prices for food partially offset rising prices for gasoline in January, leaving wholesale price inflation at a modest 2.9% annual rate, the Labor Department said.
And while the 0.5% drop in January retail sales that the Commerce Department announced in a separate report was larger than expected, analysts said much of the decline could be blamed on the Northridge earthquake last month and unusually harsh weather in the Northeast.
“There is nothing in these reports to make me think that interest rates are going to have to be bumped up again soon,” said Robert Dederick, chief economist at Northern Trust Co. in Chicago. “At this point, inflation is simply a non-issue.”
Most other analysts agreed that Friday’s reports had quelled their fears that the Federal Reserve Board would have to raise interest rates again in the next few weeks to cool down the economy and ease long-term inflationary pressures.
Last week, the Fed raised its federal funds rate--the rate banks charge each other for overnight loans--to 3.25% from 3%. It was the first such increase in five years.
At the time, some experts said the increase would be the first of several in 1994.
But analysts said Friday’s reports could allow the Fed to wait until the spring or even summer before raising rates again.
The Labor Department tracks wholesale prices through its monthly producer price index. The index’s 0.2% increase in January indicates that consumers won’t be paying much more at the checkout counter or gas pump when the goods get to market in the coming weeks.
Last month’s increase in the index was fueled by a 6.5% jump in the cost of gasoline. Overall energy costs, which also include the cost of natural gas and heating oil, climbed a smaller 0.8%.
Tobacco and auto prices also rose, helping to wipe out the benefits of a 0.3% drop in food prices--the biggest one-month decline since last summer.
Analysts had said retail sales in January would slow from their feverish Christmas pace, but the 0.5% drop reported by the Commerce Department was much larger than most had expected.
Sales of big-ticket durable goods, such as appliances and other items built to last at least three years, dropped 1.6% last month after jumping 2% in December. Total sales slipped to a seasonally adjusted $181 billion, the first month-to-month decline since March.
Still, few analysts were worried about the sales drop.
They noted that unusually bad weather in the Northeast kept many shoppers at home last month, while the earthquake closed several large shopping centers and many small businesses in Southern California.
In addition, consumer confidence remains relatively high. Although its overall reading of confidence fell for early February, the University of Michigan said a preliminary reading of its consumer expectations index--which some analysts use to estimate future consumer spending--rose.
“At this point, it appears the drop in sales primarily was due to the weather as opposed to any downturn in consumer confidence,” said Lynn Reaser, chief economist at First Interstate Bancorp in Los Angeles.
Producer Price Index
Seasonally adjusted change from prior month: Jaunary ‘94: +0.2%
Source: Labor Department
