Wholesale Inflation Up 0.2% in Sept.
Inflation at the wholesale level rose a smaller-than-expected 0.2% in September as food and energy costs showed moderation, and retail sales turned in a better-than-expected performance for the month, according to government figures released Friday.
The Labor Department reported Friday that the increase in its producer price index, which measures inflationary pressures before they reach the consumer level, follows the 0.3% advance of August.
The Commerce Department reported that retail sales rose 0.7% in September for their best showing in four months. Sales had fallen 0.2% in August.
The rebound was led by strong demand for new cars.
Private economists said the two reports show the economy is slowing from its first-half pace but is not threatening to go into a recession. The reports set off a rally in the stock market and long-term bond yields declined.
“These are numbers the Federal Reserve will like to see,” said Robert Dederick, chief economic consultant at Northern Trust Co. in Chicago. “The expansion is not dying, and we are not getting any excessive increase in prices.”
Outside the volatile food and energy sectors, the so-called core rate of inflation climbed 0.3% in September, a big upturn from the 0.1% drop for August.
But even with the September increase, the core inflation rate was still rising at an annual rate of just 0.8% so far this year, down sharply from the 2.4% increase for the same period of 1995.
The core-rate trend was blamed in part on a 1.2% rise in new-car prices, the biggest one-month rise since a 1.3% one in November 1993. However, passenger car prices had fallen the two previous months.
The 0.2% overall increase in the PPI left wholesale prices rising at an annualized rate of 2.2% so far this year, compared with a 2.3% increase for all of 1995.
Still, the rise in September’s core rate could provide ammunition for Federal Reserve Board “hawks” who favor raising interest rates to guard against rising prices. They could get more ammunition yet if there are any surprises in the September consumer price index, which will be released Wednesday.
“Maybe we’re finally getting a hint that prices aren’t immune to the economy’s growth,” Dederick said.
Since the end of September, commodity prices have continued to increase.
The Commodity Research Bureau index, a gauge of inflation based on the average price on contracts expiring over the next half-year, has risen 1.4% since Sept. 30. The Goldman, Sachs & Co. commodity index, which measures energy, farm, industrial and metals prices, has increased about 4%.
For September, food prices edged up a modest 0.2%, a much smaller advance than the 1% spurt recorded for August. The improvement reflects a turnaround in pork prices, which fell 7.5% in the biggest one-month decline in nearly nine years.
Beef prices were up 1.1% during the month, following a much larger 4.9% surge in August.
Prices also increased in September for prescription drugs, light trucks, books and women’s clothing--all categories that had shown price declines in August.
The 0.7% rise in retail sales follows a 0.2% decline for August. It was propelled by a big jump in auto sales, which climbed by 1.7% last month.
This better-than-expected performance has raised hopes among retailers that they will have a better Christmas sales season.
For Fed policymakers, however, the question is whether growth is too strong for this stage of the economic expansion.
* MARKET CHEERS: Price report sends Dow up 47 points. D3
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Producer Prices
Index of finished goods prices, 1982: 100; seasonally adjusted:
Sept., 1996: 131.7
* Source: Bureau of Labor Statistics.
