Washington - Prices charged by producers such as factories, food-processing plants and oil refineries edged down 0.1 percent in 1998, declining for a record 2nd consecutive year.
Prices plunged 1.2 percent in 1997, the steepest drop in 11 years, and slipped further in 1998 as the world economic slump depressed demand for oil, manufactured goods and farm commodities.
The two years marked the first back-to-back drops in the Labor Department's Producer Price Index since the department began compiling it in 1947. However, the brief era of deflation may be drawing to a close. Economists are predicting a modest increase this year.
“Prices will firm in 1999 as the world economy stabilizes, but I don't think they'll rise to any significant degree,” said economist Mark Zandi of Regional Financial Associates in West Chester, Pa.
In December, producer prices for finished goods jumped a seasonally adjusted 0.4 percent, the most in 15 months, driven up by a stunning 30.7 percent jump in prices charged by cigarette companies.
“Tobacco prices are soaring to pay for the settlement with attorneys general in many states,” said economist Donald Ratajczak of Georgia State University.
The report, released late Tuesday, was not scheduled for release until today. However, it was inadvertently posted early Tuesday afternoon for about an hour on the Bureau of Labor Statistics' Internet site.
It was the second such early release of market-sensitive data via the Internet. The last was in November, with job-growth figures.
William Parks, special assistant to Bureau of Labor Statistics Commissioner Katharine G. Abraham, said the latest release was the result of “an internal computer system error.” He said a preliminary check suggests “approximately 10, maybe a few more” Internet users saw the report during trading hours.
“We don't believe there was any market impact,” he said.
For much of the year, including December, falling or flat energy and food prices have helped offset modest inflation in other goods. But in December, that wasn't enough to offset the tobacco rise.
Energy prices fell 2.3 percent in December and food prices slipped 0.1 percent. But goods other than food and energy, so-called core prices, jumped 1 percent, the most in 12 years.
Normally, a 1 percent increase in core prices would be enough to raise concern at the Federal Reserve and spark market speculation over the prospect for an interest-rate increase. But, excluding cigarettes, core prices actually fell 0.1 percent.
“It's largely tobacco prices and that was something we knew about. I don't think there's any news here,” Fed Vice Chairwoman Alice Rivlin said on CNN's “Moneyline.”
In 1998, energy prices plunged 12.1 percent -- including a 34.1 percent drop for gasoline. Food prices edged 0.1 percent lower for the year. Wholesale pork prices fell 26.9 percent and fruit and vegetables fell 20.9 percent, offsetting a 10.8 percent increase for dairy products.
Prices for goods other than food and energy rose 2.4 percent last year after showing no change the year before. Sharp currency devaluations, primarily in Asia, lowered the prices on imported manufactured goods. That, in turn, forced domestic producers to match price cuts. Computer prices fell 25.9 percent; home electronic equipment, 1.8 percent, and toys, 1 percent.
However, a shift in the value of the dollar, from an eight-year high of 147 yen in August to a 28-month low of 108 yen on Monday, may keep prices of imports from falling further.
A Labor Department report on prices paid by consumers for both goods and services in December is scheduled for release Thursday. They rose at a 12-year low annual rate of 1.6 percent through the first 11 months of the year.
Meat Industry Insights News Service
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