Inflation Held in Check for 4th Straight Year : Economy: Index of price pressures up a modest 1.7%. Performance may be difficult to repeat.
Wholesale inflation was held in check in 1994 for the fourth straight year, a performance analysts said will be difficult to repeat if the economy keeps soaring and unemployment remains low.
The Labor Department said Tuesday that its producer price index rose a modest 1.7% last year, compared to a tiny 0.2% advance in 1993.
Declining energy costs helped offset a weather-related spike in food prices to help the index close the year on a positive note--a 0.2% increase for December. The producer price index measures price pressures before they reach the consumer.
“There was acceleration in 1994, and we expect to see more of it,” said economist Donald Ratajczak of Georgia State University in Atlanta. “The level of inflation is in a range we consider tolerable. The direction is upward--gradually, not dramatically.”
The consumer price index figures are to be announced today and are expected to provide similar good news, showing a rise of less than 3% for 1994.
But analysts cautioned that the Federal Reserve Board will have to keep ratcheting interest rates higher to restrain the economy and keep inflation under control.
Despite six increases in short-term interest rates by the Fed last year, consumers are still on a spending spree that probably propelled economic growth to above 4% for 1994. Most analysts consider that expansion rate far too rapid to keep inflation at bay.
“At some point this has to explode,” said economist Astrid Adolfson of MCM Moneywatch in New York. “We’ve sort of defied gravity.”
The Fed is likely to boost interest rates at least another half a percentage point at the end of the month, analysts said.
“Right now the game plan is to move in late January and see its effect. If we’re still growing fast, the Fed will move again,” Ratajczak said.
December’s 0.2% increase in the producer price index, matching analysts’ expectations, followed a 0.5% rise in November and a 0.5% decline in October.
Excluding more-volatile food and energy prices, the index rose 0.2% in December compared to 0.1% the previous month.
In another report, the Commerce Department reported that wholesale inventories increased for a fifth straight month in November, while sales were slightly lower.
Inventories held by merchant wholesalers grew 1.2% to a seasonally adjusted $235.12 billion following a revised 1.5% rise in October (previously reported as 0.6%).
During November, wholesale sales decreased 0.1% to a seasonally adjusted $175.98 billion after climbing a revised 1.0% in October. That is much stronger than the department’s original estimate of October sales up only 0.3%.
Sales of expensive durables such as new cars rose strongly in November, but there were sales declines from October’s pace for furniture and lumber and other construction materials as the pace of home building eased.
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Producer Price Index
Yearly changes in the producer price index, which measures inflationary pressures before they reach the consumer.
1994: 1.7%
Source: Labor Department
