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Wholesale Prices Up Only 1.8% for 1985 : 0.4% Increase in December Indication of Return to Normal Pattern, Analysts Say

January 11, 1986|OSWALD JOHNSTON | Times Staff Writer

WASHINGTON — Wholesale prices rose only 1.8% for all of 1985, with a 0.4% increase in December reflecting a marked slowdown from sharp October and November increases of 0.9% and 0.8%, the Labor Department reported Friday.

Economists, who had attributed the earlier two-month surge to abnormal increases in food and energy prices, said Friday that they expected wholesale prices to return to the low inflation trend of the past few years. During 1984, wholesale inflation stood at 1.7%, while in 1983 it was only 0.6%.

"The October and November increases were food- and energy-dominated, and they couldn't last," said analyst Robert Gough of Data Resources, a Lexington, Mass., economic forecasting firm. "We really anticipated this improvement."

White House deputy press secretary Larry Speakes hailed the report, also citing Wednesday's unexpectedly favorable finding that unemployment last month hit a five-year low of 6.8%.

"With unemployment falling to its lowest point in the current economic recovery and the number of jobs created during the expansion now over the 9-million mark, the prospects for continued growth are undiminished," Speakes said in a statement.

Concern Over Dollar

Allen Sinai, chief economist with Shearson Lehman Bros., declared that "the report was a relief." Sinai in recent months has worried that the sharp decline in the value of the dollar in the latter half of 1985 eventually would translate into higher inflation.

Inflation caused by a weaker dollar "would first show up here, in these food and energy prices, but this report indicates that while we have had a taste of the dollar impact, there is still no cause for alarm," he said.

He said he is looking for another year of low inflation in 1986, although not as low as during the past three years.

Donald Ratajczak, head of the economic forecasting project at Georgia State University, was even more optimistic, saying the price index was "going to be down near flat once we're over this little spike," referring to the food and energy increases of October and November.

Ratajczak predicted that crude oil prices would begin to drop, and "we may get a couple of minuses by March or April."

A statement by Jerry J. Jasinowski, chief economist with the National Assn. of Manufacturers, reflected similar sentiments.

"Wholesale prices have finished out the year completely deflating the notion that inflation would accelerate," he said.

Temporary Increases

In December, wholesale prices of finished energy goods increased 1.8%, down significantly from a 3.1% surge in November.

But the price index for crude energy goods--usually a harbinger of finished product prices several months later--dropped 0.5%, following a 0.1% decline in the previous month.

Prices for gasoline rose 2.8% and fuel oil went up 1.5%--both lower increases than November's, while natural gas costs fell 1.7% for the third consecutive monthly decrease.

At the same time, prices for beef, veal, poultry and pork fell in December, while fish prices gained only 1.9%, down from a huge 12.6% rise in the previous month.

Vegetable prices jumped 19.3%, while fruit prices increased 2.2%.

For the year, food prices ended 1985 with a gain of only 0.3%, far below the 3.5% rise in 1984.

Energy, however, ended 1985 at virtually the same level as 1984--but only after several sharp swings up and down.

The Labor Department said the producer price index, which measures wholesale prices, stood at 297.2 for December, meaning that goods that cost $100 in 1967 have risen to $297.20.

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