Broad Decline in Wholesale Prices Suggests Low Inflation : Indicators: Energy prices led the way. But analysts say rising jobless claims may give the Fed latitude to cut rates next month.
The fifth straight decline in energy costs helped push wholesale prices lower in October, and another report suggested modest economic growth. Several analysts said the combination is just what the Federal Reserve Board ordered.
The Labor Department reported Thursday that its producer price index fell 0.1%, the third drop in five months. Although the decline was led by energy prices, it was broad-based.
The department also reported that the number of new claims for jobless benefits shot up by 9,000 last week to the highest level since the summer.
New applications for unemployment insurance totaled a seasonally adjusted 375,000, the highest since they totaled 416,000 during the week ended July 15.
Analysts said the current level reflects sluggish job growth and that the lack of inflationary pressures gives Fed policy-makers the latitude to lower interest rates to stimulate the economy if needed.
Some believe the Fed could act at its policy meeting next week, but others believe it will wait for the resolution of the federal budget impasse and more economic data later this year.
Many believe the central bank has achieved its objective of a “soft landing”--slow economic growth with low inflation.
In addition to the drop in prices for finished wholesale goods, so-called pipeline inflation--prices for goods in earlier stages of production--remained muted.
“At least at the producer level, there are no price pressures in place or materializing,” said economist Eugene Sherman of M.A. Schapiro & Co. in New York. “Inflation is just not a concern at this time.”
The government’s consumer price index will be released Wednesday. Consumer prices crept up a barely perceptible 0.1% in September and for the first nine months of 1995 were rising at a modest 2.8% annual rate.
For the year so far, wholesale prices were doing even better. They were up at an annual rate of just 1.4%, compared to a 1.7% advance in 1994.
Although wholesale prices rose 0.3% in September, the increase was driven by a 1% jump in food prices, the result of a summer drought that hurt vegetable harvests. Wholesale prices fell 0.1% in August.
The department said food prices held steady in October as vegetable costs fell 19.1%, retreating from their 38.6% spike of a month earlier.
Energy prices dropped 0.9%, surpassing the 0.5% decline a month earlier. Energy costs have fallen each month since rising 0.6% in May. Heating oil costs fell 11.1%, the steepest drop since 12.1% last January. Gasoline prices were down 2.7% and natural gas was down 0.6%. However, electricity costs rose 0.5%.
Contributing to the decline in vegetable costs--the largest since a 26.6% drop in January--were plunging prices for lettuce, down 51.6%; green peppers, down 46.4%; cucumbers, down 43.4%, and endive, down 42.8%.
Excluding the volatile food and energy costs, the core rate of wholesale inflation was unchanged in October.
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Producer Prices
Index of finished goods prices, seasonally adjusted. 1982=100.
Oct. 1995: 128.0
Source: Bureau of Labor Statistics
