Rise in Energy Costs Sends Producer Prices Up 0.4%

A sharp jump in energy costs pushed wholesale prices up more strongly than anticipated in November, the government said Wednesday, though not enough to change the outlook for tame inflation overall.

The Labor Department said its producer price index, which measures inflation pressures before they reach consumers, rose 0.4% in November, after rising at the same rate in October.

Excluding volatile food and energy costs, the so-called core rate rose just 0.1% last month after falling 0.3% in October.

During November, energy prices jumped 2.3%--the biggest gain since a 2.7% rise in April, the department said. Energy prices rose 1.9% in October.

But food prices fell 0.1% after a 0.8% rise in October. It was the first drop since a 0.5% decline in April, suggesting the worst was over for food costs.

Analysts said the report pointed to tame inflation and virtually assured that the Federal Reserve Board would hold interest rates steady when the central bank’s policy-makers hold their last meeting of the year on Tuesday.

“The overall outlook is that producer price inflation is well-behaved and any pressure that is out there is narrowly confined to the energy sector,” said Raphael Marrone, an economist with Deutsche Morgan Grenfell of New York.

Some analysts said energy prices would fall next year.

“With Iraqi oil now flowing it appears that energy prices will move lower by the end of the winter heating season and that by this time next year oil prices will be below current levels,” said economist Lynn Reaser of Barnett Banks Inc. in Jacksonville, Fla.

Iraq started pumping oil Tuesday under an agreement with the United Nations for it to resume limited sales for the first time since invading neighboring Kuwait in 1990. Iraq is to use the proceeds to buy food.

Although prices for merchandise appear tame at the wholesale and retail level, some analysts said rising wages could become a concern for Fed policy-makers, though few expected a rate increase at next week’s meeting.

Gasoline prices rose 2.8% in November and heating oil prices fell 0.4%.

Prices for natural gas jumped 3.8%, a record, beating the 3.4% gain recorded in December 1995, the department said.

Prices for new cars rose a sharp 0.5% in November after falling 1.6% in October.

Tobacco prices fell 0.1% last month, after rising 0.3% in October.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Producer Prices

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

Nov. 1996: 132.7

Source: Bureau of Labor Statistics