Wholesale prices rise faster than retail

October 19, 2005|By NEW YORK TIMES NEWS SERVICE ..

Wholesale prices surged at a faster pace than consumer prices last month, the government reported yesterday, indicating that businesses are not passing on the full brunt of the energy price spike to customers.

The Producer Price Index, which measures the prices received by producers of goods and services, jumped 1.9 percent in September, as energy costs rose 7.1 percent, the Labor Department reported. It was the biggest monthly increase since January 1990, when prices also increased 1.9 percent. Food prices increased 1.4 percent in September after falling for five consecutive months.

Excluding the volatile energy and food categories, the core rate of the Producer Price Index rose 0.3 percent.

Economists were expecting a smaller jump in producer prices - 1.2 percent overall and 0.2 percent excluding food and energy. Compared with September 2004, prices rose 6.9 percent overall and 2.6 percent excluding food and energy.

Data released last week showed that consumer prices last month rose 1.2 percent overall and 0.1 percent excluding food and energy.

Unlike producer prices, consumer prices include taxes, subsidies and distribution costs.

Prices rose even faster for raw materials, which were up 10.2 percent, and goods that are in intermediate stages of production, up 2.5 percent, than they did for finished goods.

"That suggests that we are getting some inflationary pressures building in the pipeline," said Nariman Behravesh, chief economist at Global Insight, a research firm. "Those are the numbers that are likely to show up" in consumer prices.

Thus far, businesses have not passed along the entire increase in their costs to consumers. Economists have struggled to explain why that may be happening and how much longer it can continue.

Technology and other cost-saving measures have allowed businesses to become more efficient in the past decade, but those productivity gains have slowed recently. Some companies might not be able to charge more because of competition, even though the price of gasoline was up 12.7 percent and that of commercial natural gas was up 10.4 percent.

"What is giving us protection is all the global competition that we have," said Anthony Chan, an economist at J.P. Morgan Asset Management.

There does appear to be some spillover in areas like transportation and agriculture. The price of fresh fruits and melons rose 6.4 percent, egg prices soared 49 percent, and pork sold for 4.7 percent more than in August.

"It could be the weather," Chan said. "Distribution costs increase with the cost of energy. Fertilizer goes up when energy goes up."

But Chan and other economists said the increases in wholesale prices, though troubling, should ease in the coming months as oil and natural gas production and refining operations that were shut down by Hurricanes Katrina and Rita are restored.

Crude oil and other energy futures fell yesterday because forecasts indicated that Hurricane Wilma will miss oil and natural gas rigs in the Gulf of Mexico as it turns toward Florida later in the week. Still, consumers and businesses will feel another big pinch this winter in the form of higher heating costs.

The government estimates that heating costs will rise 30 percent to 48 percent this winter, with natural gas users hit the hardest.

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