Surge in Business Sales Boosts Risk of Bigger Fed Move

U.S. wholesalers in March reported the largest rise in sales in three months as retailers increased orders to meet robust consumer demand for such goods as drugs, furniture, lumber and imported autos.

Tuesday’s Commerce Department report on business inventories and sales may provide more ammunition for those Federal Reserve policymakers who believe the central bank must get more aggressive in its campaign to cool the economy.

Indeed, two Fed officials on Tuesday, in separate speeches, warned that inflation appears poised to accelerate and that the Fed must act to curb it. The central bank is expected to raise its key interest rate for the sixth time since June.

The Commerce report said sales by wholesalers rose 1% in March after being unchanged in February. Inventories increased 0.7% in March after growing 0.6% in February.

“This underscores how strong overall demand was in the first quarter,” said William Sullivan, economist at Morgan Stanley Dean Witter in New York. “Businesses were trying to build up inventories, but they fell behind. Sales have eclipsed the inventory buildup.” As a result, factories may have to step up production, and retailers may have to import more goods, he said.

That’s not what the inflation-paranoid Fed--already worried about what it views as excessive demand in the economy--wants to see, analysts say.

“It does seem pretty clear that we’ve reached a stage where inflation is no longer falling,” Robert Parry, president of the Federal Reserve Bank of San Francisco, said Tuesday. “It’s risky to just sit back and wait for an upward trend in inflation to show up before we do something.”

The Fed has raised its key short-term interest rate, now 6%, by a quarter-point five times since June. Referring to widespread expectations that the Fed will boost its rate by a half-point when it meets Tuesday, Parry hinted that may be on the mark.

Fed Vice Chairman Roger Ferguson said the Fed must maintain a public stand against accelerating price increases so that the public’s inflation expectations remain low--a key to keeping wage and price demands under control.

His comments suggested that, if the Fed’s inflation-fighting credibility is on the line, the central bank is likely to favor more stringent action to slow the economy.