010429 Wholesale Prices Drop Slightly; Food Up 1.1%

Washington - Wholesale prices fell in March, led by a record drop in the price of natural gas used in homes. Retail sales were lackluster, fresh evidence of the weak economy.

The Producer Price Index, which measures inflation pressures before they reach store shelves, edged down by 0.1% last month, the first decline in seven months, the Labor Department reported. That followed a 0.1% rise in February.

Food prices rose 1.1% in March, the biggest increase since April. Pork prices rose 7.8%, the largest gain since August 1999. Beef and veal prices climbed 3.2%. Dairy products went up by 2.2%, fruit prices rose by 2.7% and vegetable prices increased by 7%. Separately, two other reports showed the toll the sluggish economy is taking on retail sales nationwide.

The Commerce Department reported that retail sales fell by 0.2% in March, a worse showing than analysts expected. And, most of the nation's largest retailers said that March sales were disappointing.

Consumers, whose spending accounts for two-thirds of all economy activity, have been feeling less inclined to spend, given stock market volatility, lower confidence in the economy and a weaker job market. However, cold weather during the month also was a factor.

The March PPI, however, provided a brighter reading on inflation than many analysts expected. They were forecasting wholesale prices would actually increase by 0.1%.

With inflation posing little current risk to the economy, the Federal Reserve has plenty of room to lower interest rates again in an effort to rejuvenate weak economic growth, analysts say.

In a third report, the number of Americans filing new claims for state unemployment insurance last week climbed to its highest level since March 30, 1996, further evidence of a weakening labor market.

Jobless claims rose by 9,000 to a seasonally adjusted 392,000. Government officials said layoffs in the automobile industry, which has cut production in the face of slumping demand, accounted for part of the unexpected rise.

Trying to stave off recession, the Federal Reserve slashed interest rates three times this year, totaling 1.5%. Economists expect another rate reduction either before or at the Fed's next scheduled meeting May 15.

Wholesale inflation outside the volatile energy and food sectors - which can swing widely from month to month - edged up an expected 0.1% in March, after falling by 0.3% the prior month.

Energy prices, which rose 1.4% in February, actually fell by 2.6% in March, the best showing since April 2000.

Costs for residential natural gas declined by a record 4%, surpassing the previous all-time drop of 3.8% in April 1997.

After peaking in December, natural gas prices have eased, and economists expect prices will continue to moderate or fall in coming months.

Heating oil prices declined by 9.2% in March, the biggest drop since April, and costs for liquefied petroleum gas, such as propane, plunged 16.4%, the largest decrease in four years.

Gasoline prices, however, rose 0.5% in March. Prices at the pump are expected to go up as the nation enters the peak summer driving season. Supply also is expected to shrink given production cuts by oil-producing nations.

The Organization of Petroleum Exporting Countries last month decided to cut crude production for the second time this year, hoping to halt the recent slide in oil prices.

Food prices rose 1.1% in March, the biggest increase since April. Pork prices rose 7.8%, the largest gain since August 1999. Beef and veal prices climbed 3.2%. Dairy products went up by 2.2%, fruit prices rose by 2.7% and vegetable prices increased by 7%.

Elsewhere in the report, prices for computers fell by 5.9% in March, the second-largest decline on record. Car prices rose 0.6% and truck prices went up 0.5%.

Prescription drug prices rose 0.9%, the biggest gain since July 1999. Economists say the introduction of expensive new drugs along with strong demand by aging baby boomers accounts for the continued rise in prescription drug costs.

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