Oil prices fuel mixed results

December 14, 2007|By Maura Reynolds, Elizabeth Douglass and Victoria Kim | Maura Reynolds, Elizabeth Douglass and Victoria Kim,LOS ANGELES TIMES

WASHINGTON -- Soaring energy costs helped fuel a record rise in wholesale inflation and an unexpectedly strong gain in retail sales, government reports showed yesterday, sending mixed signals about the state of the economy.

The figures come as retailers, bankers and consumers struggle to get a fix on their financial future, and economists scrutinize statistics, searching for signs of either an impending recession or recovery. The latest economic data produced a bit of both.

On the gloomy side, wholesale prices leapt 3.2 percent in November, the second-highest one-month gain in the Producer Price Index since the energy crisis of the 1970s, raising fears that high energy costs could be spreading beyond the fuel pump to ignite inflation throughout the economy.

On a brighter note, consumer spending, which accounts for about 70 percent of the economy, rose 1.2 percent last month, about twice what economists had forecast.

Roughly half of that increase was caused by rising fuel prices, but analysts noted that the rest of the gains appeared spread across other retail sectors - suggesting that consumer spending would buoy economic growth in what many had feared would be a dismal fourth quarter.

Economists said the results showed that high energy prices were beginning to have a real effect on the economy. But they also said the figures might not indicate long-term trends.

"If you believe the retail sales number, you'd think we're in the midst of a boom. If you believe the [Producer Price Index], you would think there's runaway, rapid inflation. I think neither one is accurate," said Joel L. Naroff, president of Naroff Economic Advisors, an economic forecasting company in Holland, Pa.

Naroff noted that there was not a direct or quick link between increases in wholesale and consumer prices and that the effect of a short-term spike in energy prices at the Producer Price Index level could be minimal.

"Clearly energy costs are killing people. But as a broad-based indicator of inflation, that's just not there," Naroff said.

Many economy watchers have been surprised by the relatively small ripple effect of sharply higher oil prices, which approached $100 a barrel last month. Diesel prices, up 20 percent since August, are of particular concern, because diesel engines move most of the nation's food and goods to market.

"It's surprising that we have not seen more of it in all the data," energy economist James L. Williams said of the high oil prices. "Higher diesel costs means my head of lettuce is going to cost more to come from California to Arkansas."

Peter E. Kretzmer, a senior economist with Bank of America, said he considered the retail sales increase the more significant figure, because it suggests consumers are willing to keep spending despite the blow of energy costs on their budgets.

Maura Reynolds, Elizabeth Douglass and Victoria Kim write for the Los Angeles Times.

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