WASHINGTON — A weakening dollar and sharp increases in the cost of food, petroleum and autos drove wholesale inflation up 0.7% in April, the largest increase in 18 months, the Labor Department reported Friday.
It was the fifth consecutive monthly increase in the producer price index, an inflation measure that had declined through much of 1986, thanks mostly to plummeting oil prices. So far this year, wholesale price inflation has been running at an annual rate of 5.1%.
Banks Raise Rates
The April increase, the steepest since a 0.8% rise in October, 1985, was somewhat higher than expected in the financial markets. Together with Friday morning's move by leading banks to increase the prime lending rate by 0.25 of a percentage point to 8.25%, the news sent Wall Street stocks into a steep decline. By the close of trading, the Dow Jones average had plummeted 52.97 points.
But economists said the inflation report should not be taken as a signal that 1970s-style inflation is roaring back--yet.
"It's too early to panic, but a report like this scares people," said Donald Ratajczak, director of the economic forecasting project at Georgia State University in Atlanta, a specialist in price movements.
'People Are Scared'
"It comes at an unfortunate time, with the markets so jittery. And, because people are scared, they are more likely to pass the increases along to the retail level, so consumer price inflation is going to be higher than expected this year."
But, he added, inflation for the year is not likely to be as high as suggested by April's unusually high food, energy and auto price increases. Meat prices, in particular, were up sharply as producers chose to expand their herds rather than slaughter--a development that promises sharply lower meat prices later in the year. Pork was up 13.1% and beef and veal rose 8.3%.
Oil prices are thought to be stabilizing at or near $19 a barrel; the 2.1% energy price increase in April was far less than the 9.8% increase in January or the 4% increase in February. Energy prices had dropped a slight 0.2% in March.
Finally, prices for new cars and light trucks jumped 2.4% and 2.9% respectively because rebates to dealers, which had pushed those prices lower in February and March, were discontinued.
Accordingly, Ratajczak said, a good bit of the April rise in wholesale prices was attributable to "special events" that won't be repeated. Nevertheless, his view, shared by other economists, is that wholesale prices will rise about 0.4% monthly for most of the rest of the year.
Rise Exceeded Forecast
"It's not time to panic, though I would rather have seen it on the low side of our estimate instead," said Christopher Caton of Data Resources Inc. of Lexington, Mass., whose forecasting model had predicted 0.6% wholesale price inflation for April.
"But we shouldn't put too much emphasis on one month's statistics," he added. "It's not going to continue at this rate. We expect it will be more like 0.4% for the next month or so."
"We see some more food price increases but expect energy to stabilize," added Martin Mauro of Merrill Lynch in New York. "We see some more increases in imported and domestic manufactured goods and . . . a continuing rise in raw materials prices, which primarily reflect the impact of the falling dollar."
Average prices for all crude goods jumped 2.8% in April after increases of 2.1%, 1.8% and 0.1% in the previous three months--after steady raw material price deflation throughout all of 1986.
Falling Dollar Blamed
Mauro stressed that the turnaround in the prices of primary goods, however dramatic in appearance, is almost entirely attributable to the falling dollar and in no way attributable to the global raw materials shortages that seemed imminent a decade ago.
"This is not going to be a replay of the 1970s," Mauro said. "It stems from the dollar."
Before seasonal adjustment, the producer price index, from which the Labor Department computes monthly price changes, rose by 2.7 points to 295 in April. The index is developed from a base of 100 in 1967, meaning that a selected cross section of wholesale goods costing $100 in 1967 now costs $295.