Wholesale prices rose 0.5% in July XTC

August 12, 1994|By New York Times News Service

WASHINGTON -- Producer prices rose one-half of 1 percent in July, the biggest increase in 15 months, while retail sales slowed slightly, the government said yesterday.

But both overall figures masked changes in key sectors of the economy that give contradictory indications of whether the current economic expansion will lead to a sharp rise in inflation.

And, taken together, the figures further muddled the question of whether the Federal Reserve will push up short-term interest rates again when its main policy committee meets Tuesday, Wall Street analysts said.

Stock and bond markets fell after the release of yesterday's economic reports.

The overall figures released yesterday were much less important than their components, Wall Street analysts said. The big increase in overall producer prices, for instance, mainly reflected a sharp rise in food and energy prices, especially for coffee and gasoline.

Producer prices for the rest of the economy, which Federal Reserve officials have cited as more important to their interest-rate decisions, only crept up by a tenth of a percentage point, the Labor Department said.

But producer prices for so-called intermediate goods, such as lumber and paperboard, rose four-tenths of a percent in July after an increase of six-tenths of a percent in June, a pattern that several analysts called an ominous harbinger of possible consumer price increases ahead.

Prices for intermediate energy goods, including gasoline, diesel fuel and jet fuel, rose 1.7 percent, while prices for nondurable manufacturing materials like paperboard, wood pulp and various chemicals, climbed nine-tenths of a percentage point.

While overall retail sales fell by a tenth of a percentage point, that figure was also deceptive. It mainly reflected a 1.7 percent drop in sales of cars and trucks, which have been in short supply as factories struggle to refill dealer lots that consumers nearly picked clean last spring.

Excluding autos, retail sales rose four-tenths of a percentage point in July. The Commerce Department which also revised its estimate of June retail sales growth to eight-tenths of a percentage point, from six-tenths.

Retail sales were especially strong in July at furniture and home furnishings stores, up 1.3 percent, and in restaurants and bars, also up 1.3 percent.

Sales at building materials and garden supply outlets rose 1.5 percent while clothing-store sales fell nine-tenths of a percent.

Allen Sinai, chief economist at Lehman Bros., was skeptical that yesterday's figures would tilt the central bank for or against a fifth interest rate increase this year.

"They add to the ambiguity and uncertainty of whether the Fed will raise interest rates," he said.

Several other important economic reports are scheduled for release before Tuesday and may also influence the central bank's decision: the consumer price index today and the industrial production and industrial capacity utilization figures on Monday.

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