Wholesale Prices Jump, but Sales Fall

Wholesale prices, driven higher by energy costs, jumped in April by the largest amount in five months. Financial markets took the bad inflation news in stride as a second report showed the economy continuing to slow.

The Commerce Department reported that retail sales fell 0.4%, the second decline in three months. Auto sales led the plunge, suffering the largest drop-off in demand in more than two years.

While a 0.5% spurt in wholesale prices--the biggest since November--would normally trigger inflation worries, most economists say the figure is an aberration and that the widespread economic slowdown will dampen any price pressures.

The core rate of wholesale inflation--which excludes the volatile food and energy sectors--gained 0.3% in April, with the price of tobacco, autos, alcoholic beverages and girls’ clothing all rising.

“We are achieving a soft landing,” said Cynthia Latta, senior economist at DRI-McGraw Hill Inc. in Lexington, Mass. “We are not looking at a sick economy, just a slowing economy.”

Analysts predicted that the Federal Reserve Board, which doubled a key short-term interest rate last year in an effort to slow the economy to a more sustainable pace, will keep interest rates unchanged when it next meets May 23.

But while spreading signs of economic weakness had prompted some talk that the Fed might even cut rates, analysts said increases in the producer price index and the consumer price index would be too high for a few months to allow the Fed to cut rates.

“We have an economy that is slowing markedly, but we are still feeling the delayed price effects of the earlier rapid growth,” said Robert Dederick, an economist at Northern Trust Co. in Chicago.

Financial markets were impressed by Thursday’s developments. The Treasury’s benchmark 30-year bond traded in a tight range, ending the day at 6.98%, still near its lowest level in a year, as bond markets breathed more easily about the future course of the economy.

The weak retail sales report was just the latest in a string of indicators depicting an economy slowing dramatically from its 1994 pace. The government last week reported that unemployment shot up to 5.8% in April.

On Thursday, the government said that while new claims for unemployment benefits dropped by 6,000 last week, the four-week moving average crept up to 357,000, its highest level since last July.

The retail sales report shows consumers continued to be in a non-spending mood. Purchases of big-ticket durable goods fell for the fourth time in the past five months, reflecting the weakness in demand for autos.

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Producer Prices

Index of finished-goods prices, seasonally adjusted; 1982=100:

April 1995: 127.9

Source: Labor Department

Retail Sales

In billions of dollars, seasonally adjusted:

April 1995: 192.6

Source: Commerce Department