Wholesale prices drop for 4th straight month

April 12, 1991|By Oswald Johnston | Oswald Johnston,Los Angeles Times

WASHINGTON -- Inflation at the wholesale level declined during March for the fourth month in a row, the U.S. government reported yesterday, heightening speculation about whether the Federal Reserve will move to push interest rates down further.

The Department of Labor's monthly producer price index fell 0.3 percent over the month as price increases moderated across a wide range of sectors. The decline followed decreases of 0.6 percent in February, 0.1 percent in January and 0.6 percent in December.

Heartening to many analysts was that although the declines were concentrated primarily in energy prices, the so-called underlying rate of inflation -- which excludes volatile food and petroleum prices -- rose only 0.2 percent, down from 0.4 percent and 0.5 percent respectively in February and January.

At the same time, however, the Department of Commerce reported that retail sales fell a sharp 0.8 percent in March -- the third decline in the past four months -- as a pickup in consumer confidence failed to ignite a spending boom that might speed economic recovery.

In one upbeat development, the Department of Labor said that the number of new claims for unemployment insurance fell by 70,000 in late March after soaring to 543,000 the previous week -- the highest in more than eight years. But analysts warned that the figures are volatile.

The combination of figures prompted renewed speculation that the Federal Reserve may move to push interest rates lower, possibly sometime late today after the government publishes the monthly consumer price index, which provides a broader measure of inflation.

Financial markets, clearly encouraged by the moderate inflation figures, pushed stock prices sharply higher yesterday. The Dow Jones industrial average closed up 30.95 points at 2,905.45 in active trading of 197 million shares.

Despite the initial enthusiasm, however, some analysts were skeptical that the inflation reports this week will persuade the Federal Reserve to make any dramatic moves to ease interest rates -- if indeed the central bank acts at all.

Fed Chairman Alan Greenspan had pledged to keep reducing interest rates as long as the economy remains in recession, but he and other governors have been reluctant to move too rapidly without more convincing signs that inflation was beginning to abate.

Even so, economists were generally bullish about yesterday's reports.

Donald Ratajczak, chief economist at the Georgia State University forecasting service, said "there's enough weakness . . . to suggest that commodity prices will be pretty calm for the next few months."

And Lynn Reaser, an economist at the First Interstate Bancorp in Los Angeles, also was optimistic. Ms. Reaser said that the improvement in the March figures suggests that the higher inflation reported in January and February "was an aberration from the underlying trend."

The March decline in retail sales levels was somewhat offset by a new revision that showed the abrupt pickup that had been reported for February was far stronger than estimated earlier. The update showed February's gain at a strong 2 percent, rather than the 0.8 percent initially reported.

Irwin L. Kellner, economist for Manufacturers Hanover Trust Co. in New York, noted that even with the March figures included, the decline in retail sales has been abating since the depths reached earlier this year.

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