Wholesale Prices Increase Again

Wholesale prices are climbing, industrial production is faltering and housing construction is rebounding, offering mixed signals about the economy.

The latest batch of economic reports, released Tuesday, depicted “an OK economy that is moving forward. It’s not uniformly strong, but it is still sturdy,” said Mark Zandi, chief economist at Economy.com.

A Labor Department report showed the producer price index, which measures the costs of goods before they reach store shelves, increased 0.6% in April, reflecting more expensive energy, cars and cigarettes.

The increase in wholesale prices came on top of an even larger 0.7% advance in March.

The latest price figures bolstered economists’ belief that Federal Reserve Chairman Alan Greenspan and his colleagues will continue to push up short-term interest rates for much of this year to combat inflation.

Excluding energy and food prices, which can swing widely from month to month, “core” wholesale prices increased by 0.3% in April. That was up from a 0.1% advance in March and represented the largest increase since January.

“Inflation is accelerating. It is not doing so rapidly but the direction is clear,” said Joel Naroff, president of Naroff Economic Advisors.

In another report, the Federal Reserve said industrial production at the nation’s factories, mines and utilities declined 0.2% in April, after nudging up 0.1% in March. April’s decline was the largest since September.

Production at factories in April was flat, especially restrained by cutbacks in automobile production.

Economists blamed the manufacturing weakness on rising prices for energy and other goods hurting demand for cars and other items, and on companies trying to work off excess supplies.

Housing construction, meanwhile, jumped 11% in April, compared with a 17.6% drop in March, the Commerce Department said. The advance in April increased the total number of housing units that builders broke ground on to a brisk 2.04 million, on an annualized basis.

“The fundamentals for housing are good,” said David Seiders, chief economist at the National Assn. of Home Builders.

The latest snapshot of inflation, however, surprised economists. Before the report was released, they were forecasting a 0.4% rise in overall wholesale prices and a 0.2% increase in core inflation.

Wanting to make sure inflation doesn’t become a problem, the Federal Reserve has boosted short-term interest rates eight times -- each in modest, quarter-point moves -- since last June, when the Fed’s campaign to tighten credit began.

At the Fed’s most recent rate increase May 3, policymakers said “pressures on inflation have picked up in recent months and pricing power is more evident,” meaning companies were finding it somewhat easier to raise prices to customers.