Wholesale Prices Rose 0.5% in March

Soaring energy costs during a winter that seemingly wouldn’t quit pushed wholesale prices up sharply in March, the latest government economic data showed Thursday, but excluding energy, inflation was nearly nonexistent.

Fears of budding inflation have unsettled Wall Street recently. Stocks fell sharply on Wednesday after a report of increases in commodity prices, and there was another big drop Thursday before the market rallied for a slight gain.

The Labor Department said Thursday that its producer price index shot up 0.5% in March, the biggest since an identical jump last December. The previous high was 0.6% in November 1994.

The PPI, which measures cost pressures before they reach the consumer level, had fallen 0.2% in February, the first decline in eight months.

Energy costs, which had dropped 0.7% in February as temperatures moderated, shot up 2.4% as harsh weather reappeared a month later. Frigid weather had pushed energy prices up 2.7% in January and 3.7% in December.

“Winter does not want to end, and the inventory of fuels is low,” said Donald Ratajczak, an economist at Georgia State University. “Thus, another cold spell led to a surge in oil prices.”

But excluding energy, wholesale prices in March were up just 0.2%.

Analysts had predicted a 0.4% overall advance and the bigger-than-expected increase initially sent stocks sliding more than 70 points on Thursday.

The cold also contributed to a 0.6% advance in food prices, which had dipped 0.3% in February.

But excluding the volatile food and energy components, the so-called core rate of wholesale inflation inched up just 0.1%. That matched the barely perceptible increases in February and December. The core rate actually fell 0.1% in January.

Alice Rivlin, White House budget director and President Clinton’s nominee to be Federal Reserve Board vice chairman, said there’s “very little evidence of accelerating inflation,” though commodity prices have risen recently. At the same time, she said, “inflation hasn’t been decelerating either.”

The overall increase in the March PPI was the highest since a 0.5% rise in December, and it topped analysts’ expectations by a tenth of a percentage point.

Taken together with last Friday’s stronger-than-expected gain in March employment and a Labor Department report that first-time unemployment claims fell last week, Thursday’s news reinforces the notion that the Fed is likely to hold the overnight bank lending rate steady at 5.25%. Fed policymakers next meet May 21. They left the rate unchanged at a March 26 session.

Jobless claims fell by 59,000 last week to 347,000, the lowest level since mid-January. Much of that change resulted from workers idled by the General Motors Corp. strike returning to their jobs.

These signs of labor market strength have some economists fretting. “We may be at a turning point” for inflation, said David Jones, chief economist at Aubrey G. Lanston & Co. “It’s not so much commodity prices. Wages are the key. I think we are going to see some acceleration in wage pressures.”

The department releases its consumer price index today. Analysts predict it will show a 0.3% gain, slightly more than February’s 0.2% increase. But excluding food and energy, consumer prices were expected to advance only 0.2%.

* RETAIL SALES SURGE

Many retailers reported healthy sales gains for March. D2

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Producer Prices

Index of finished goods prices, 1982=100. Seasonally adjusted:

March 1996: 130.4

Source: Bureau of Labor Statistics