Wholesale Prices Surge to 15-Year
High
Yahoo News/AP
By MARTIN CRUTSINGER, AP Economics Writer
October 18, 2005
WASHINGTON - Wholesale inflation jumped by the largest amount in 15 years in
September and there are worrisome signs that soaring energy prices from the
hurricanes are beginning to spill over to the rest of the economy.
Prices at the wholesale level rose 1.9 percent, the biggest increase since
the first Persian
Gulf War in 1990. Like the 1.2 percent September jump in consumer prices
announced last week, the biggest in 25 years, the surge was led by energy costs
reflecting the widespread shutdowns of production following Hurricanes Katrina
and Rita.
But the report on wholesale prices raised more worries because it showed
that outside of food and energy, price pressures were increasing. The so-called
"core rate" of wholesale inflation rose by 0.3 percent last month after no
change in August.
The rise in wholesale prices stoked inflation fears on Wall Street and sent
stock prices tumbling. The Dow Jones industrial average fell 62.84 points to
close at 10,285.26.
Of 30 nonfood consumer goods tracked in the wholesale price report, 20
posted price increases and only two — soaps and toys — showed price
declines, a marked turnaround from earlier in the year when most categories
were showing declines.
Among the big price increases were 1.1 percent for women's apparel, 0.9
percent for passenger cars and 1 percent for heavy trucks, a gain that analysts
said may be related to increased demand for vehicles to help in the Gulf Coast
clean-up.
"Slowly, but inexorably, inflationary pressures are building across the
economy," said Joel Naroff, chief economist at Naroff Economic Advisors, a
private consulting firm.
The worry is that a sharp jump in energy prices will begin to put pressure
on products outside of energy and cause the underlying rate of inflation to
start rising. That could prompt the
Federal Reserve to accelerate its interest rate increases in an effort to slow
the economy as a way of keeping inflation from getting out of hand.
However, if tight global supplies keep energy prices at elevated levels, the
inflation pressures might intensify even as the economy is slowing, pushing the
country into "stagflation" — stagnant growth and rising inflation —
something not experienced in America since the oil shocks of the 1970s and
early 1980s.
At the moment, analysts said the threat of stagflation was remote in part
because the Fed started gradually increasing interest rates 14 months ago to
avoid having to slam on the brakes.
Analysts did say they were concerned about government predictions that
natural gas to heat homes will cost 48 percent more this winter and home fuel
oil will be 32 percent higher, pinching consumers' wallets at a time when they
are already paying record prices for gasoline.
"Natural gas is definitely a problem. If we have a mild to normal winter, we
are OK. But if we have a colder winter than normal, we just don't have enough
natural gas," said David Wyss, chief economist at Standard & Poor's in New
York.
In recent weeks, a number of Fed officials have made comments acknowledging
growing unease about inflation. In a speech in Tokyo on Tuesday, Federal
Reserve Chairman
Alan Greenspan said the jump in energy prices "will undoubtedly be a drag from
now on" but he did not quantify how much of an impact it will have on the
economy.
Oscar Gonzalez, an economist at John Hancock Financial Services in Boston,
said the Fed is likely to keep raising rates at its next three meetings,
pushing the federal funds rate, the interest banks charge each other, to 4.5
percent by early next year.
The 1.9 percent jump in wholesale prices matched a similar rise in January
1990 and has not been surpassed since a 2 percent increase in November 1974,
another period of surging oil prices caused by the first Arab oil embargo.
Over the past 12 months, the
Producer Price Index, which measures wholesale inflation, has risen by 6.9
percent, the biggest 12-month change since a rise of 7 percent in the 12 months
ending in November 1990.
For September, energy prices jumped by 7.1 percent, the biggest one-month
gain since a 7.5 percent rise in October 1990. Food costs shot up 1.4 percent,
reflecting a record increase in the price of eggs and steep gains in vegetable
prices.
Outside of food and energy, the 0.3 percent increase in core inflation was
the biggest rise since a 0.4 percent increase in July. Over the past 12 months,
core inflation at the wholesale level is up 2.6 percent.
On the Net:
Producer Price Index report: http://www.bls.gov/ppi
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