June Wholesale Prices Rise; Retail Sales Off

Wholesale prices rose a moderate 0.2% in June, and retail sales fell for the second time in three months, according to government reports released Friday.

The two reports raised hopes among financial analysts that the Federal Reserve Board might not increase interest rates soon.

According to the Labor Department report, food costs shot up by 1.3% in June, the biggest advance in 6 1/2 years, reflecting higher beef, pork and fruit prices. However, energy prices fell for a second straight month, after having staged a big run-up earlier this year because of tight supplies. June’s 2.1% decline is the biggest decline since December 1994.

The 0.2% producer price index increase, which was slightly above expectations, comes after a decline of 0.1% for May and leaves wholesale prices rising at an annualized rate of 2.2% through the first half of this year.

The rise in food costs, steepest since a 2% rise in January 1990, would have been higher yet had vegetable prices not fallen by 5.4% last month, reflecting lower costs for lettuce, eggplant and beets.

Excluding the volatile food and energy categories, the so-called core rate of inflation was up 0.2% in June, a moderate rate of increase. There was no change at all in May.

The Commerce Department reported that retail sales fell by 0.2% in June and that there was widespread weakness in this key sector. Sales rose 0.8% in May after having fallen 0.1% in April.

“These reports show that consumers are becoming more cautious and inflation is notably absent,” said Bruce Steinberg, economist at Merrill Lynch in New York.

But many analysts said they still believe the Fed will start raising interest rates next month in an effort to cool an economy that, extrapolating from spring figures, was most likely expanding at an annualized rate of 4%.

Fed Chairman Alan Greenspan may well give some indication of the central bank’s next moves on interest rates when he delivers the Fed midyear economic report to Congress on Thursday.

The 0.2% dip in retail sales was led by a 1.4% drop in auto sales. Sales at department stores were down 0.4%, the worst showing for that sector in four months.

The only signs of strength were at restaurants and bars, for which receipts rose 0.5%, and at building supply and hardware stores, where sales rose 1.2% on top of a May gain of 1.4%.

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FOOD PRICES

Wholesale food prices rose sharply in June. A1