Producer Prices Defy Forecasts, Hold Steady

Wholesale prices showed no change in May as lower costs for energy and food more than offset higher prices for cars and a record jump in the cost of books, according to government figures released Friday.

The flat reading in the Labor Department’s producer price index, which measures inflation pressures before they reach consumers, surprised analysts who had predicted that a rebound in energy costs would push up wholesale prices by 0.3%.

“I don’t see a lot of serious inflation in this report,” said Donald Ratajczak, director of Georgia State University’s economic forecasting project.

Outside the volatile energy and food categories, the “core” rate of inflation at the wholesale level rose 0.2% last month, slightly faster than many analysts were forecasting. In March and April, core prices rose by just 0.1%.

Economists offered conflicting opinions as to whether the uptick in May’s core rate was a worrisome harbinger of inflation dangers.

“This adds a new element of concern about inflation because a preponderance of items saw prices increasing,” said Paul Kasriel, a Northern Trust Co. economist.

But Merrill Lynch economist Stan Shipley said that, excluding the increase in car prices, the core PPI rose 0.1%, matching many analysts’ expectations. “There is no significant inflationary pressure,” he said.

The Federal Reserve has raised interest rates six times since last June to slow the economy and keep inflation from becoming a problem.

Some economists thought Friday’s PPI report reduced the odds of another rate increase when the Fed meets June 27 and 28. Others said next week’s report on inflation at the consumer level may help settle that debate.

So far this year, wholesale prices have been rising at an annual rate of 4.3%, compared with a 3% gain for all of 1999. The pickup in this year’s wholesale prices largely reflects rising energy costs.

In April, however, wholesale prices fell for the first time in 14 months as energy costs plunged 4.1%.

And, in May, energy prices--contrary to most analysts’ expectations--declined 0.5%.

Ratajczak didn’t believe the report captured price increases--particularly those involving gasoline--occurring late in the month. As a result, June’s PPI report will likely show a sizable increase in energy prices, he said.

The 0.5% decline in energy prices was led by a 12.1% drop in the cost of liquefied petroleum gas, the sharpest decrease since January. Residential electric power fell 0.5%, the largest decline in almost a year.

Those price decreases more than offset rising prices for gasoline and residential natural gas, which each went up by 1.3% in May. Home heating oil rose 2.5%.

Food prices in May fell 0.2%, after a sharp 1% increase the month before. Car prices rose 0.9%, the largest gain since September, and light truck prices went up 0.4%.

Book prices jumped a record 2.4%, surpassing the previous record increase of 1.6% in June 1995.