Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SATURDAY, May 12, 1990 TAG: 9005120033
SECTION: BUSINESS PAGE: A5 EDITION: METRO
SOURCE: Associated Press
DATELINE: WASHINGTON LENGTH: Medium
The Labor Department's Producer Price Index for finished goods, one stop short of retail, fell a seasonally adjusted 0.3 percent last month.
It was the sharpest decline since August and the third consecutive moderate report after a severe cold snap sent prices spiraling 1.8 percent in January. The index fell 0.2 percent in March and was unchanged in February.
"The inflation scare is over," declared economist Lawrence Hunter of the U.S. Chamber of Commerce.
For the first four months of the year, inflation at the wholesale level was running at a 4.2 percent annual rate, down from 4.8 percent for all of 1989.
Separately, the Commerce Department said retail sales unexpectedly slumped 0.6 percent in April, the third month without an increase.
Financial markets rallied while interest rates and the dollar fell in response to the reports. Traders said the figures provided a double dose of evidence that economic growth and inflation remain subdued.
The Dow Jones average of 30 industrial stocks climbed 63.07 to 2,801.58, its third highest closing ever. The dollar, at the prospect of lower interest rates, dropped to 152.70 Japanese yen, off 3.80 yen from Thursday.
The reports, along with one last week showing the April unemployment rate rising to 5.4 percent, likely will convince Federal Reserve monetary policy makers to leave interest rates unchanged when they meet Tuesday, economists said.
Prior to the April figures, many economists believed the Fed would nudge interest rates higher out of concern that growth was rebounding too strongly and inflation was reigniting.
"We started the year worrying about a recession, then we worried about inflation and now there's worry about a recession again. People are zigzagging on this," said economist Donald Ratajczak of Georgia State University.
The Labor Department said food prices fell 0.6 percent in April after an identical decline a month earlier. Prices rose for eggs, rice, pasta and pork. They fell for fruit, chicken, cooking oils and candy.
Vegetable prices, which fell 25.5 percent in March after record increases in the preceding two months, fell an additional 31.1 percent last month. It was the biggest drop since the government began tracking those costs in 1967. Tomato prices fell 73.3 percent.
Energy prices dropped 1.7 percent after declining in the two previous months. Gasoline prices, with the start of the warm weather driving season, climbed 2.2 percent. Fuel oil prices, however, fell 1.9 percent while natural gas costs dropped 5.5 percent.
Excluding the volatile food and energy sectors, prices rose a modest 0.2 percent after rising a 0.3 percent advance in March. Economists said this "core" number is often a better indicator of underlying inflationary pressures in the economy than the calculation that includes food and energy expenses.
Automobile prices fell 0.9 percent in April. Clothing price inflation recovered from increases a month earlier. Women's, men's and boys' clothing costs were unchanged. Girls' and infants' clothing prices fell 0.2 percent.
The various changes put the index for all finished goods at 117.0 in April. That means a hypothetical selection of goods that cost $100 in 1982 would have cost $117 last month, up from $113 a year earlier.
by CNB