010356 Wholesale Prices Rise in February

Washington - Wholesale prices were tame in February, rising a tiny 0.1% after shooting up the month before. Lower costs for cars and trucks helped to blunt higher prices for natural gas and other energy products.

The small advance in the Producer Price Index , which measures inflation pressures before they reach store shelves, followed a huge 1.1% in January, the Labor Department reported Friday. February's performance was on target with many analysts' forecasts.

Prices for goods other than food and energy products - which often swing widely from month to month - actually fell 0.3% in February, marking the biggest drop since August 1993. Prices fell for many goods but decreases in car and truck prices led the way.

That followed a big 0.7% jump in the “core” rate of inflation in January. Price increases during that month were widespread for all types of goods, although record price increases for natural gas was the biggest booster to overall wholesale inflation.

The Federal Reserve slashed interest rates twice in January, totaling a full percentage point, in an effort to prevent the weakening economy from slipping into a recession. One of the reasons Fed policy-makers cited for being able to act so aggressively was that inflation - outside the burst in energy prices - had remained in check.

Many economists expect the Fed will cut rates a third time at its next meeting, and Friday's wholesale price report, showing little inflation, would give the central bank room to move.

One area of the economy that has held up well during the slowdown has been housing. The Commerce Department , in another report, said housing construction fell by 0.4% in February to an annual rate of 1.65 million units. Even with the decrease, the level of activity is still healthy.

For all of last year, wholesale prices shot up 3.6%, the biggest jump in a decade. But most of the pickup came from soaring energy prices.

In February, energy prices rose 1.4%, down from a 3.8% jump the month before. The trend of rising energy costs reflects production limits and strong demand.

Natural gas used in homes rose 3.5% in February, but that's an improvement over the record 11.3% increase in January.

Natural gas prices peaked at more than $10 a thousand cubic feet in December, but have declined to half that, and the futures market indicates prices will continue to fall in coming months.

Liquefied petroleum gas, such as propane, rose 9.2% last month and prices for residential electric power increased 1%. But gasoline prices fell 0.8% and heating oil costs declined by 1.6%.

Meanwhile, prices for food rose 0.6% in February, down from an 0.8% increase. Higher prices for pork, chicken, fish and vegetables swamped falling prices for dairy products and fruits.

Elsewhere in the report, car prices fell 1.5%, the biggest decrease since July 1997, and truck prices declined 3.6%, the largest drop since October 1982.

RETURN TO HOME PAGE

E-mail: sflanagan@sprintmail.com