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Wholesale Prices Up a Steep 0.9%, Paced by Cars, Food, Gas

June 09, 1989|From Associated Press

WASHINGTON — Wholesale inflation came roaring back in May after a two-month lull, rising a steep 0.9% as prices soared for gasoline, fresh vegetables and cars, the government said today.

For the first five months of the year, wholesale inflation for goods one stop short of the retail level was running at a 9.4% annual rate, more than double the 4% rise in 1988 and quadruple the 2.2% 1987 gain.

The Labor Department's producer price index troubled economists earlier this year, when it soared 1.1% in January and 0.9% in February. But moderate rises of 0.4% in both March and April had been seen as a sign that inflation had retreated at least a bit.

In advance of today's report, many economists were predicting a moderate-to-brisk 0.5% gain.

Michael Boskin, President Bush's chief economic adviser, attributed most of the inflation so far this year to the "special factors" of energy and food and predicted better numbers ahead.

"We want to remain vigilant against inflation. We expect inflation to stabilize in the second half of the year and decline thereafter," Boskin told reporters at a White House briefing.

Energy prices in May rose 3.3%, a steep increase but less than half April's 30-month record of 7.2%. For the last six months, energy prices have surged at a 43.3% annual rate.

Gasoline Prices Soar

In May, the increase was propelled by a 5.2% jump in gasoline prices, which followed a 13.4% jump in April. Natural gas prices rose 3.4%, while heating oil costs declined 7.7%.

Food prices, which had posted a rare 0.6% decline in April, rebounded 0.8% in May. The price of vegetables skyrocketed 26.4% as celery and tomato prices doubled and cabbage prices rose by one-third.

There were also significant increases for eggs, rice, pasta and chicken. Prices for beef, pork and fish declined.

For the last six months, food prices have risen at an annual rate of 7.3%. But analysts expect that trend to moderate, barring a repeat of last year's drought.

The price of goods excluding the volatile food and energy sectors, often taken by analysts as a truer reflection of underlying inflationary pressures, rose 0.5% last month following an unusual 0.1% decline in April.

The increase in May was largely driven by a 1.8% rebound in auto prices following a 2.8% decline a month earlier. The April drop was produced by manufacturers' incentives to bolster sagging sales.

Traders in financial markets were looking to today's report to provide an indication of how far and how fast the Federal Reserve Board will lower interest rates.

Fed Lowers Funds Rate

Earlier this week, the Fed nudged the key federal funds rate--the interest charged banks for overnight loans--down by a quarter of a percentage point to near 8.5%.

Michael K. Evans, president of Evans Economics Inc. in Washington, said today's report means the Fed likely will wait at least a month before loosening credit further.

"I don't think there's going to be any further easing by the Fed until we . . . get some good inflation numbers for more than one month at a time," he said.

Still, analysts were optimistic that inflation reports eventually will improve.

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