Producer Price Index Dips 0.1%
Falling prices for gasoline, home heating oil and food combined last month to cause an unexpected 0.1% decline in the producer price index, but prices for new cars and prescription drugs rose noticeably, the Labor Department reported Wednesday.
Separately, the U.S. Department of Agriculture forecast that consumers will continue to get a break on food prices, as beleaguered U.S. crop prices sag further under the weight of an unrelenting global glut.
Record-level global crops and stiff competition for export sales have helped put U.S. grain prices at the lowest level since the agricultural recession of the mid-1980s. Congress approved a record $8.7 billion in emergency farm aid last month, but a price recovery is not in sight for at least a year.
U.S. grain bins were forecast to bulge with more than 1 billion bushels of wheat and 2 billion bushels of corn when next year’s crops are ready for harvest--the largest “carry-over” in eight years or more.
Food prices are likely to rise only 2.1% for the year, said Annette Clauson, USDA’s food inflation monitor, thanks to ample grain supplies that mean low feed costs for meat production and stable input costs for food processors.
For 2000, prices are expected to climb no more than a still-modest 2.5%.
Meanwhile, the small drop in the October PPI, which measures changes in prices that producers charge when they first sell a completed product, followed a large 1.1% increase in September. That rise was the result of increases in energy, food, tobacco and new-car prices.
Many analysts were anxious to see the latest report on prices because it will be the last one issued before Federal Reserve policymakers meet Tuesday in an atmosphere of considerable uncertainty to consider whether to raise interest rates to keep inflation under control. As has been the case with a number of other recent reports, analysts are divided over how producer price index figures would influence the policymakers.
The key inflation concern raised by the report was a 0.3% increase in the so-called core portion of the index, which excludes volatile food and energy prices. In September, the core PPI rose a sharp 0.8%, principally because of higher new-car prices and the largest increase in tobacco product prices in history.
“The core PPI data is where [financial] market participants should be focused, as this index will concern Fed policymakers,” said Dana Saporta, an economist at Stone & McCarthy, a financial markets research firm. “These data bolster our view that the best news in core inflation is behind us.”
Even with last month’s 1.1% increase in passenger car prices, which came on the heels of a 2% rise in September, producer prices for cars were only 0.3% higher than they were in October 1998. In addition, September and October price changes are hard to interpret because of large swings in seasonal adjustment factors related to the annual introduction of new models.
Reuters was used in compiling this report.
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Producer Prices
Index of finished goods prices; 1993=100; seasonally adjusted:
October: 134.5
Source: Bureau of Labor Statistics
