000125 Wholesale Prices Rise 3% in 1999

Washington - Prices at the wholesale level shot up 3% in 1999, the biggest increase in nine years, but the price pressures were largely confined to the energy sector.

Outside of energy and food, wholesale prices rose just 0.9% last year, even better than a 2.5% increase in 1998, the Labor Department said.

For December, the Producer Price Index, which measures inflation pressures before they reach the consumer, was up 0.3%, right on target with many analysts' expectations. The December advance came from a big jump in gasoline and other energy prices.

The 3% advance in last year's wholesale prices was the largest annual gain since a 5.7% rise in 1990 and it stemmed from a huge 18.4% rebound in energy costs, which had fallen sharply in 1998 as the Asian currency crisis depressed global demand. In 1998, overall wholesale prices were flat.

Economists pointed to the well-behaved performance all year of the core PPI rate, which excludes energy and food, as evidence that inflation remains under control.

“In the grand scheme of things, inflation is still very low,” said Mark Zandi, an economist with Regional Financial Associates.

The government will report on price pressures at the retail level when it releases its Consumer Price Index on Friday. Analysts are looking for a 0.3% rise in December.

In a separate report, the Commerce Department said that retail sales surged 1.2% in December, stronger than the 0.9% increase many analysts were anticipating. The report shows that hardy consumer spending continues to fuel the nation's strong economic growth.

The Federal Reserve raised interest rates three times last year to slow the red-hot economy and keep inflation from escalating. With projections for continuing strong economic growth, many analysts believe Fed policy-makers will bump up interest rates again, by at least a quarter of a percentage point, when they meet next on Feb. 1-2.

The bond market appeared unfazed by the reports. The inflation-sensitive bond market gained a little ground this morning, pushing yields down from the 2 1/2-year highs reached Wednesday. Yields on 30-year Treasury bonds, a barometer for long-term borrowing costs, dipped to 6.69% in early trading today from 6.71% late Wednesday.

In another report, the number of Americans filing new claims for unemployment benefits was unchanged at 309,000 for the week ending Saturday. The four-week moving average, which smoothes out week-to-week volatility, rose to 294,000, the highest level since Oct. 16.

Outside food and energy, wholesale prices rose 0.1% in December, in line with analysts' forecasts, and suggesting that price increases in other areas were tame.

In December, energy prices rose 1.2%, following a 1.4% rise the month before. An 8.5% jump in gasoline prices led the way, the biggest gain since August. For the year, gasoline prices rose a whopping 76.4%, the largest annual gain since a 78% rise in May 1980.

Heating oil rose 3.8% in December, but prices for residential electric power and natural gas fell. Residential natural gas prices declined by 2.9%, the lowest level since April 1997.

Food costs rose 0.4% in December, pushing the total increase for 1999 to 0.9%, compared with a 0.1% gain for all of 1998. Sharp increases in the prices of beef, pork, and vegetables in December offset decreases in the prices of eggs, turkeys and fish.

Another factor contributing to the rise in December's overall wholesale prices was a 0.7% increase in the car prices. But prices for light trucks showed no change.

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