Wholesale Prices Remain Flat in June : Economy: The Labor Department report shows an annual inflation rate of 1.6% for the first six months of ’94.
The Labor Department said Tuesday that wholesale prices remained in check last month, easing some analysts’ concerns that inflation is heating up but putting renewed downward pressure on the battered U.S. dollar.
The report shows that the prices producers charged their retail customers--a key indicator of which way prices will move when they finally hit store shelves--were unchanged in June from their May levels. It was the third month in a row that prices have not climbed.
Some economists said the good inflation news could dissuade the Federal Reserve Board from raising short-term interest rates again soon in its battle to keep price increases under control.
But with the chances of another round of interest rate hikes apparently reduced, traders once again sent the dollar tumbling against most major foreign currencies Tuesday before the greenback rallied late in the day.
The dollar closed at 97.50 yen in New York trading, off from 97.75 yen Monday. It had fallen to 96.55 yen early Tuesday morning, a postwar low.
The Labor Department’s inflation report says wholesale prices for food were flat last month, while tobacco prices dropped. Energy prices edged up 0.3% after dropping a full percentage point in May.
If the volatile food and energy sectors are excluded, the so-called core rate of inflation actually fell 0.1% last month. Inflation in the first six months of the year ran at a modest 1.6% annual rate, even lower than the 1.9% rate in the first half of 1993.
“If inflation runs more than 3% this year, I’ll eat my computer printouts,” said Ron Schreibman, executive director of the National Assn. of Wholesale Distributors in Washington.
Schreibman and some other analysts said Tuesday’s report relieves pressure on the Fed to raise short-term interest rates again soon. The Fed has raised rates four times in the past five months to keep inflation in check and the economy from overheating.
But other experts disagreed, noting that the economy added a robust 1 million jobs over the past few months. With prices for oil and many other raw materials beginning to rise, inflation is far from dead, they contend.
Tuesday’s report of flat producer prices was “a nice surprise, but inflationary pressures are still out there building,” said David Munro, an analyst for the New York research firm High Frequency Economics. “There’s still room for the Fed to push rates higher.”
If the Fed thinks another rate hike is needed, this could be an ideal time to get it out of the way, some analysts said.
With the economy still humming along, it would be difficult for either the Clinton Administration or Congress to complain that a rate hike as high as one-half or even three-quarters of a percentage point could throw the country back into recession.
An increase in short-term rates could also bolster the dollar, because rates on Treasury bills and other U.S. investments would rise. Higher rates in America could attract more foreign money, which would tend to make the greenback stronger, experts said.
