Producer Price Index unchanged in March

April 12, 1995|By New York Times News Service

WASHINGTON -- In an unexpectedly benign report, government figures showed yesterday that inflation vanished at the producer level in March, as both energy and food prices turned down.

Not only was the price of finished products unchanged for the month, constituting the best performance since October, but goods at earlier stages of production also settled back to a pace that calmed jitters that had been developing from sharp price increases since late last year. March marked the end of the fourth year of economic recovery and expansion following the 1990-1991 recession.

"The United States still does not have any serious inflationary problem," said Lacy Hunt, chief economist at HSBC Holdings in New York. "There's an ample supply of goods and services and companies keep finding ways to make productivity gains."

Financial markets initially rallied on the news, with economists taking heart from the fact that the steep slide in the dollar has so far failed to show up in higher prices. But the market gains melted away later in the day.

With the volatile energy and food components removed, the Producer Price Index for finished goods edged up just one-tenth of 1 percent in March, also the skimpiest rise in five months.

Yesterday's figures, if followed today by similarly restrained consumer prices, which also reflect the price of services, would seem to further reduce the possibility that the Federal Reserve will raise interest rates any time soon, analysts said.

Indeed, a growing number of economists are coming to believe that in light of the significant slowing of the economy that has become evident in recent weeks, the Fed's next move might as likely be to cut rates as to raise them.

Yet the economy still shows signs of vigor, with store sales last week climbing 10 percent above those of the comparable 1994 week, which followed Easter, according to the Johnson Redbook tabulation. The gain was adjusted for one less shopping day last year.

The Labor Department's price figures showed finished goods unchanged in March despite flooding in California that curbed production of fruit and vegetables and despite the dollar's decline against the Japanese yen and the German mark, which might have allowed competing U.S. producers to raise prices. Imported goods themselves are not included in the index.

In fact, the price of passenger cars fell four-tenths of 1 percent, the report showed, the second straight decline. Analysts noted that car sales had softened here and that Detroit had suffered also from the economic crisis in Mexico, where peso customers face huge price increases and where dealers are having great difficulty financing inventories.

In all, according to analysts at S. G. Warburg, 31 finished goods rose by more than one-tenth of 1 percent last month, while 20 fell that much and 23 were essentially unchanged. In February, 50 items rose significantly and only 12 declined.

But at least as impressive as the tabulation of zero inflation for finished goods was a rise of just three-tenths of 1 percent for items at the intermediate stage of production, such as lumber and copper.

"The best news is that intermediate goods prices seemed to have given us a break," said L. Douglas Lee, an economist at NatWest Washington Analysis. Intermediate items had risen an average of eight-tenths of 1 percent a month for November through February.

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