WASHINGTON -- U.S. producer prices inched higher in September as food and energy costs rose at a slower pace, the government reported yesterday.
A separate report indicated that retail sales broke out of a slump last month after a rare decline in August.
The producer price index rose a smaller-than-expected 0.2 percent in September even though auto prices surged, the Labor Department said. Retail sales, meantime, bounced back from a revised 0.2 percent decline in August to post a larger-than-expected 0.7 percent rise in September, the largest gain in four months.
Stocks and government bonds rallied on the news, in part because the inflation number wasn't as bad as some traders expected. Investors also interpreted the downward revision to August retail sales as a sign the economy isn't overheating.
"You don't have much strength," said Cynthia Latta, an economist at DRI/McGraw-Hill in Lexington, Mass. "There isn't any obvious price pressure. Consumer spending remained soft."
Also yesterday, the University of Michigan reported that consumer confidence in the economy remained strong in early October. The university's consumer sentiment index rose to 94.8 for this month from 94.7 in September.
The reports suggest the Federal Reserve will refrain from raising interest rates at its next policy session Nov. 13, analysts said. Fed Gov. Lawrence Lindsey said yesterday the central bank's target of 5.25 percent for the federal funds rate on overnight loans among banks, which influences other short-term rates, is "about right, and the markets think so too."
For the first nine months of the year, producer prices rose at a 2.2 percent annual rate, up from a 1.5 percent pace in the same period a year earlier, the Labor Department said.
When food and energy costs are taken out, however, producer prices rose at a 0.8 percent annual rate in the first nine months of the year, down from a 2.4 percent rate a year earlier. "Except for the period of the cigarette price wars in 1993, this is the lowest core wholesale rate ever measured," said Bruce Steinberg, an economist at Merrill Lynch in New York.
In August, the PPI core rate fell 0.1 percent even though the overall index increased 0.3 percent for the month.
Investors also took comfort in the fact that both wholesale food and energy prices increased just 0.2 percent during September, said Anthony Chan, chief economist at Banc One Investment Advisors Corp. in Columbus, Ohio. That showed that crude oil prices, which climbed to $23-$24 a barrel from under $20 after the latest military clash between the United States and Iraq, aren't causing major price problems.
Still, the larger-than-expected increase of 0.3 percent in September's core rate of inflation could provide ammunition for Federal Reserve "hawks" who want to raise interest rates to guard against rising prices.
That's especially true if there are any surprises in Wednesday's release of the consumer price index for September. "Maybe we're finally getting a hint that prices aren't immune to the economy's growth," said Robert Dederick, an economic consultant at the Northern Trust Co. in Chicago.
For example, Christopher Hurley, president of Advanced Electric Inc. in Knoxville, Tenn., said his cost of doing business is rising this year by more than 4 percent -- about double the pace of the PPI.
While he hasn't passed on increased costs to customers, "inevitably we will have to do so," Hurley said. Although his
company doesn't offer employees health insurance, Hurley has had to raise salaries to remain competitive. Additionally, his suppliers have raised their prices.
Since the end of September, commodity prices have continued to increase. The Commodity Research Bureau index, a gauge of inflation based on the average price on contracts expiring over the next half year, has risen 1.4 percent since Sept. 30. The
Goldman, Sachs & Co. commodity index, which measures energy, farm, industrial and metals prices, has increased about 4 percent.
Retail sales, meantime, hit a new monthly high in September -- $205.709 billion -- as Americans snapped up cars and new clothes. Excluding autos and other vehicles, sales still rose 0.4 percent last month after dropping 0.5 percent in August.
Last month's brisk sales pace comes as low joblessness, climbing wages and record consumer confidence levels signal that Americans may be regaining the spending mood. Analysts surveyed by Bloomberg Business News anticipated a 0.3 percent increase in total retail sales last month.
Pub Date: 10/12/96