Producer prices jumped sharply last month, the government reported Friday, but analysts said the report was not a harbinger of higher inflation.
The 0.5% rise in the producer price index was the largest since a similar increase in December, the Labor Department said. But analysts noted that the increase was almost entirely due to increases of 1.5% in the cost of gasoline and most other energy products, 1.4% for new cars and 3.2% for tobacco products.
"This was a one-month aberration and not the beginning of an upward trend in inflation," said economist Mickey Levy of NationsBank Montgomery Securities in New York. The increase in tobacco prices was a "one-time" event while the increase in car prices was more a seasonal adjustment, he said.
Car dealers began offering their end-of-model-year discounts in early summer to spur lagging car sales, rather than last month. As a result, they offered much less additional discounting last month than usual, and after seasonal adjustment, this showed up in the report as an increase.
Cheryl Katz, an economist at Merrill Lynch & Co. in New York, agreed that the PPI was not signaling more inflation ahead.
"In particular, auto price increases will be reversed in coming months," she said.
New-car prices charged by auto makers last month were 2.1% lower than they were in September 1996. In fact, despite last month's rise, the overall PPI is where it was a year earlier, Katz said.
But the report did cause stocks and bonds to slump as investors grappled with the possibility that the rise in producer prices signals the start of an inflationary surge that could prompt the Fed to push up borrowing costs.
But Katz said the report is not likely to worry the Federal Reserve Board very much or prompt policymakers there to raise short-term interest rates any time soon.
"The Fed realizes these are one-time factors and will be on hold for the rest of the year," she said.
Katz said that the Fed will take comfort in some other statistics due out next week that will indicate that economic growth is slowing. For instance, Merrill Lynch expects the Commerce Department to report that a small drop in retail sales occurred last month as a result of weak sales for both autos and apparel.
"Although consumer spending was robust in the third quarter, it likely [was] at the expense of fourth-quarter sales," Katz said.
In congressional testimony earlier this week, Fed Chairman Alan Greenspan reiterated warnings that the demand for labor has been growing faster than the supply and that if this doesn't change, it will inevitably lead to higher inflation.
This inflationary pressure would ease, however, if U.S. economic growth slowed from the relatively rapid pace of the first half of this year.