000437 Wholesale Prices Jump 1.0% in March

Washington - The biggest leap in energy prices in nearly 10 years made wholesale inflation in March rise 1% for the second month in a row. But outside energy, prices were well-behaved. Meanwhile, soaring gasoline prices helped push up retail sales by a faster-than-expected pace.

The government reports show that the speeding economy continues to be fueled by hardy consumer spending, yet aside from the surge in energy prices, inflation remains quiet, economists said.

Given the outlook that Americans will continue to spend freely in the months ahead, thus supporting strong economic growth, many analysts believe the Federal Reserve will boost interest rates by at least a quarter of a percentage point on May 16.

“The economy is on fire but even with the strong growth, inflation remains a no-show outside of energy,” said economist Richard Yamarone of Argus Research Corp. “For retailers, every month is Christmas.”

The Fed has boosted interest rates five times since June 30 to slow the economy and keep inflation under control.

On Wall Street, a continued selloff of technology stocks mixed with inflation fears drove the Dow Jones industrial average down 201.58 points to 10,923.55, its steepest point drop since March 7. The Nasdaq also finished sharply lower.

The 1% advance in the Labor Department's Producer Price Index, which measures inflation pressures before they reach the consumer, was a worse showing than many analysts expected. But they didn't view it as worrisome because the increase was contained to surging energy prices reflecting a crude-oil crunch.

Outside the volatile energy and food categories, the “core” rate of inflation at the wholesale level rose a tiny 0.1%, right on target with many analysts' predictions, suggesting that most other prices were tame.

Fed Chairman Alan Greenspan, in an appearance before Congress, said: “There are a lot of indications of prices going up. If you look, however, at the underlying cost structure of American business, I see no evidence of an acceleration” in inflation.

In February, wholesale prices shot up 1%, the largest gain in nearly 10 years, propelled by hefty increases in energy costs. But the core rate rose a modest 0.3%.

On the retail front, sales rose 0.4% in March, twice as fast as economists expected. Excluding the volatile category of car sales, which fell sharply, March's total retail sales were up a sizable 1.4%.

Consumers snapped up building supplies and clothing, but the biggest boost came from gasoline sales, which rose 4% reflecting higher prices at the pump, the Commerce Department said.

Economists said they were surprised by the strength of March's retail sales given that most Easter-related sales didn't occur until April.

“What happened to the `drop' in `shop `till you drop?”' wondered economist Joel Naroff of Naroff Economic Advisors.

The surge in March's wholesale prices stemmed from a huge 5.8% gain in energy prices, the sharpest rise since October 1990.

Gasoline prices went up a sizable 14.9%, the largest gain since April. Prices for liquefied petroleum gas, such as propane, rose a whopping 28.5%, also the biggest jump since October 1990.

Production limits by oil-producing nations largely accounted for the rise in energy costs. Crude oil prices hit the $34-a-barrel mark in early March, the latest in a series of nine-year highs, sending gasoline prices soaring. But a decision by oil-producing countries to boost production should eventually provide some relief.

Food prices, meanwhile, rose a scant 0.1% last month as a record 30.6% decrease in egg prices helped offset rising prices for vegetables, pork and beef.

In another report, the number of Americans filing new claims for unemployment benefits last week rose by 3,000 to 264,000, but still left claims in a range suggesting that companies are scrambling to find qualified workers.

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