Oil Prices Help Boost Producer Price Index

Surging oil prices helped give wholesale inflation its biggest jolt in seven months in September even as Americans spent freely, snapping up cars and furniture.

Although Friday’s reports showed inflation pressures rising and consumers, the engine of the economy’s brisk growth, displaying no signs of buying fatigue, economists continued to be optimistic that the Federal Reserve will leave interest rates unchanged for the rest of the year.

Recent stock market volatility and rising energy prices could make Americans spend more cautiously in coming months, a harbinger of slower economic growth, economists said. That would be welcomed by the Fed, which has raised interest rates six times in the last 16 months to prevent the economy from overheating.

But if higher energy prices are sustained and spill over into prices for other products, they also could spark inflation.

Big jumps in the cost of gasoline and heating oil helped catapult the producer price index to a seasonally adjusted 0.9% rise last month, the Labor Department said. It was the biggest gain since February for the PPI, which measures price pressures before they reach store shelves. Wholesale prices fell in August.

The core rate of wholesale inflation, which excludes energy and food prices, rose 0.3% in September, after a tiny, 0.1% increase the month before. The acceleration reflected the biggest increase in car prices in five years and the largest jump in truck prices in 11 years.

Paul Taylor, chief economist for the National Automobile Dealers Assn., said that’s largely a statistical quirk reflecting the difficulty of adjusting for the introduction of some higher-priced 2001 models.

Other economists agreed and said discounting and other incentives offered by dealers and manufacturers explained a big increase in new-car sales last month.

In another report, the Commerce Department said retail sales rose 0.9% in September, with car sales rising a brisk 1.4%, the best showing since February. Home furnishings sales grew by 0.8%.

With plentiful jobs and rising incomes, consumers were in the mood to buy last month, economists said. Sales at gasoline stations grew 2.1%, reflecting higher prices at the pump.

“So far, consumers have shrugged off higher energy prices, higher interest rates and, more recently, a weaker equity market and continue to spend strongly,” said Mark Zandi, chief economist for consulting firm Economy.com.

Energy prices soared 3.7% in September, the largest gain in three months, after falling 0.2% in August.

Gasoline prices rose 9.3%, the largest increase since June, and heating oil costs went up 13.4%, the biggest rise since February.

Food prices, meanwhile, rose 0.4% in September, the first increase since April. Rising prices for fruits, vegetables and chickens swamped falling prices for dairy products, beef and pork.

Economists blamed the increase in food prices on a drought in the Southeast.