Advertisement

Wholesale Prices Dip Unexpectedly for 2nd Straight Month in October : Economy: The surprise 0.5% decline matches September's. But analysts see the Fed raising interest rates despite the anti-inflationary news.

November 11, 1994|From Times Wire Services

WASHINGTON — Wholesale prices fell unexpectedly for a second straight month in October, as car prices posted their sharpest drop in a year and gasoline and heating oil prices also slumped, the government said Thursday. But economists said the good news won't prevent another interest rate increase by the Federal Reserve Board next week.

The big decline in the Labor Department's producer price index was identical to the 0.5% decrease reported in September, marking the first time the index has posted back-to-back declines in three years.

Both the Clinton Administration and Wall Street welcomed the price report. Most analysts had been looking for a modest pickup in inflationary pressures.

"All recent signs are that the U.S. economy continues to enjoy a winning combination of healthy growth with modest inflation," said White House chief economist Laura D'Andrea Tyson.

Tyson noted that the good news on wholesale prices and a report Wednesday showing a tiny increase in unit labor costs "indicate that inflationary pressures in the American economy remain well contained."

However, private analysts said they still expect the Fed to boost interest rates for a sixth time this year when it meets Tuesday. Many analysts said they expect increases of half a percentage point in both the federal funds rate, the interest that banks charge each other, and the discount rate, the Fed's charge for direct loans to banks.

"The Fed is going to go ahead and hike interest rates on Tuesday. The debate will be over how much, not whether to raise rates," said Sung Won Sohn, chief economist of Norwest Corp. in Minneapolis.

Some analysts said they believe the steep decline in the PPI will limit the Fed to a half-point increase rather than the full point some had feared.

Meanwhile, the Labor Department reported that the number of Americans filing new claims for unemployment benefits rose a steep 8,000 to 330,000 last week.

But analysts cautioned against reading too much into the volatile weekly number. They said labor markets remain healthy, as evidenced by last week's report that the unemployment rate fell to a four-year low of 5.8% in October.

The largest jump in claims was reported in Michigan, up 2,331, an increase blamed on seasonal layoffs throughout the state.

California had the biggest decrease for the week of Oct. 29, reporting a 5,679 drop in new jobless claims, an improvement credited to fewer layoffs in the service industry.

The back-to-back 0.5% declines in the producer price index in September and October left inflation at the wholesale level rising at an annual rate of just 1.2% this year.

The leading contributor to the decline in October was a 2.6% drop in new car prices, the biggest in more than seven years.

However, some analysts called that a statistical quirk.

Producer Price Index

For finished goods; seasonally adjusted change from month before:

Oct. 1994: -0.5%

Source: Labor Department

Advertisement
Los Angeles Times Articles
|
|
|