Wholesale Prices Rise Modestly in November as Retail Sales Surge : Economy: In light of the government figures, analysts say the Fed still could raise interest rates again.
Wholesale prices rose moderately and retail sales surged in November, the government reported Tuesday, indicating that the economy is still expanding but without a bout of worrisome inflation.
The Labor Department said its producer price index rose 0.5%, in line with expectations.
Such a big increase in the index would normally stir inflation concerns, but analysts dismissed the rise as a bouncing back after two big consecutive monthly declines. They noted that a measurement of so-called core inflation, which excludes the often-volatile food and energy sectors and which economists believe more closely reflects underlying price pressures, edged up a barely perceptible 0.1%.
Nonetheless, analysts suggested that another rate hike by the Federal Reserve Board is possible. “The Fed’s inclination to tighten or not to tighten at the Dec. 20 (policy-making session) is probably not altered by these data,” said Ray Stone of Stone & McCarthy, a financial markets research firm in Princeton, N.J. “The Fed is looking into 1995.”
“On balance, inflation still appears slight at the finished-goods level, but the economy is clearly growing fast enough to lead to further Fed tightening,” said Bruce Steinberg, macroeconomics manager for Merrill Lynch & Co. in New York.
Many analysts said they expect Fed policy-makers to leave interest rates unchanged when they meet Dec. 20, but said that another increase would be more likely at the next meeting, on Jan. 31 and Feb. 1. However, some other analysts said the strong tone of virtually all recent economic statistics could persuade the Fed to move this month.
The Commerce Department reported that retail sales surged by 1.2% in November after making a gain of 1.3% in October, suggesting that the holiday shopping season got off to a solid start.
The bond market responded in a mixed way to the reports, with the yield on the 30-year Treasury bond easing to 7.85% from 7.92% on Monday. But short-term interest rates rose--sharply narrowing the gap between short- and long-term rates--indicating investor beliefs that the Fed will raise short-term rates further.
The mild gain in the wholesale inflation figure was propelled by a 4.5% rise in gasoline prices. The jump was caused in part by a requirement for cleaner-burning fuels in metropolitan areas.
The wholesale price rise followed a 0.5% decline both in September and October as the industry continued to digest higher production and commodity price increases.
Stephen Roach, senior economist at Morgan Stanley, said the moderate increase “continues to indicate that despite the pressures at the upstream stages of production, there is an inability to pass (price increases) through at the finished-goods level.”
Prices for goods at the intermediate level of production rose 1.1%, whereas so-called crude goods at the commodity level were up 1%.
So far this year, inflation at the wholesale level has been rising at a moderate annual rate of 1.6%.
Food prices rose a moderate 0.2% in November, after having declined 0.2% in October. Overall energy prices were up 2.1%, primarily because of the increase in gasoline prices. It was the largest jump since February, when the figure was 2.8%.
The Commerce Department said passenger car prices rose 1.0% and tobacco prices fell 0.4%. Beef prices rose, but vegetable prices declined substantially.
The retail sales picture gives ammunition to those who argue that the U.S. economy is growing quickly. The Commerce Department report showing a stronger-than-expected gain, to a seasonally adjusted $194.2 billion, follows a revised 1.3% gain in October.
November was the sixth straight month for rising retail sales figures, and the 1.2% increase was more than twice the 0.5% that Wall Street economists had forecast. Warm weather for much of the month had been expected to curb demand for many items, particularly clothing.
However, apparel sales increased last month by 0.6%, following a big 2.2% jump in October.
General-merchandise stores, where sales fell 0.1% after a 0.3% rise in October, was the only category in which sales declined from October.
Sales of new cars rose 14.6% in November. New cars account for about a fifth of total retail sales, so swings in demand strongly influence the overall monthly figure.
Retail sales excluding cars increased 0.9% last month after rising 0.5% in October.
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
Retail Sales
Seasonally adjusted, in billions of dollars, Nov. ‘94: $194.16
Source: Commerce Department (BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
Producer Price Index
Seasonally adjusted change from prior month: Nov. ‘94: 0.5% Source: Labor Department * INDICATIONS OF RECOVERY
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