Producer prices continue their four-month slide Imports and energy smother inflation, but food increases

March 14, 1998|By BLOOMBERG NEWS

WASHINGTON -- Prices paid to U.S. factories, farmers and other producers dropped in February for the fourth month in a row as lower costs for imported goods and oil smothered even the faintest hint of inflation, a government report showed yesterday.

The drop in energy prices led to a 0.1 percent fall in the Labor Department's Producer Price Index, which is sinking so far in 1998 at an annual rate of 4.5 percent. That's an even steeper drop than the 1.8 percent decline registered during the first two months of 1997, a year that saw the biggest fall in producer prices in more than a decade.

"You've got a solid economy with no inflation," said Kevin Flanagan, an economist at Morgan Stanley Dean Witter in New York. "This is more of what we saw in 1997." In January, for example, the PPI dropped 0.7 percent while the core rate declined 0.1 percent.

The core rate of the Producer Price Index, which excludes food and energy costs, rose 0.1 percent during February. For all of last year, producer prices fell 1.2 percent, while the core rate rose 0.1 percent.

Consumer confidence in the economy remains healthy, a survey from the University of Michigan shows. The school's index of consumer sentiment for March came in at 106.8, down from February's record 110.4, according to people with access to the report.

The good times in the United States are coming at the expense of slumping Asian economies. The plunge in many Asian currencies last year has contributed to a drop in import prices. Prices U.S. businesses paid for imported goods declined in February for the fourth consecutive month.

Rising prices for food could slow the decline in producer prices in coming months.

In February, food prices at the producer level rose 0.4 percent, "a pretty good sized increase" that reflects heavy February rains and flooding of vegetable crops in California and Florida, said Keith Collins, chief economist at the U.S. Agriculture Department.

As a result, vegetable prices during the first half of 1998 could surge 10 percent to 15 percent compared with the first half of 1997, he said.

Pub Date: 3/14/98

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