Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: FRIDAY, January 10, 1992 TAG: 9201100054
SECTION: BUSINESS PAGE: A-5 EDITION: METRO
SOURCE: Associated Press
DATELINE: WASHINGTON LENGTH: Medium
INFLATION A BRIGHT SPOT
Prices paid by wholesalers fell in 1991 for the first time in five years, the government said Thursday in a report reflecting a dramatic swing in oil costs and a stagnant economy.The department's Producer Price Index declined by a seasonally adjusted 0.2 percent in December, bringing wholesale inflation for the year to minus 0.1 percent.
That followed a 5.7 percent rise in 1990 and was the best performance since a 2.3 percent drop in 1986. Declines in the index are rare; there have been only five since 1955. The 1986 drop was the first since 1963.
In a separate report, the Labor Department said new claims for unemployment insurance jumped in the last full week of the year, even though Christmas left laid-off workers one less day than usual to file for benefits.
"Low inflation is one of the few bright spots we have," said economist Sandra Shaber of The Futures Group, a Washington consulting firm. "We have a lousy job market and people's earnings are terrible. But at least those earnings go a little bit further."
A good portion of the improvement in 1991 came from shifting energy prices. They soared 30.7 percent in 1990 with Iraq's invasion of Kuwait, then fell 9.6 percent last year after it became clear the war had not permanently disrupted the world oil supply.
But even factoring that out, price increases are moderating. Excluding the volatile food and energy sectors, prices charged by factories, farms and other producers rose 3.1 percent in 1991 compared with 3.5 percent in 1990.
Economists said persistent economic sluggishness has sapped consumers' appetite for buying, thus easing upward pressure on prices. They expect weak growth will continue the dampening of inflation this year.
"Inflation is subdued . . . and that's the prospect for the year ahead," said economist Robert Dederick of Northern Trust Co. in Chicago.
Meanwhile, new claims for unemployment benefits jumped by 22,000 to 458,000 during the week ending Dec. 28. Analysts caution against reading too much into a one-week blip in the volatile number, but they note that for weeks claims have bounced around at recessionary levels of between 400,000 and 500,000.
In the latest monthly survey by Blue Chip Economic Indicators, released Thursday, 48 top economists are predicting, on average, subpar economic growth of 1.6 percent in 1992 after a virtually non-existent 0.2 percent rise in 1991.
The combination of good inflation news and bad news for economic growth raised the possibility of another interest rate cut by the Federal Reserve to stimulate the economy.
Most economists expect the central bank, either this month or next, to nudge the 4 percent federal funds rate lower. That is the rate charged among banks for overnight loans.
Two Nobel-Prize-winning economists, appearing Thursday before Congress' Joint Economic Committee, urged the Fed to quickly push rates lower. Paul L. Samuelson of the Massachusetts Institute of Technology and James Tobin of Yale University also cautioned against passing permanent tax cuts to spur the economy.
President Bush, returning from a trade mission to Japan, is expected to propose some sort of tax cut this month. His advisers are still working on the contents of the package.
The December decline in the producer index was the first monthly drop since July and followed increases of 0.2 percent in November and 0.7 percent in October.
Food prices fell 0.4 percent in December and 1.6 percent for the year. Energy prices dropped 1.4 percent for the month.
December food costs were kept down by a 15.2 percent slump in vegetable costs. They had soared 23.6 percent in November because of the white-fly infestation in California.
Prices for gasoline dropped 3.4 percent in December and 25.1 percent for the year. Home heating oil costs fell 15.2 percent in December and 30.5 percent in 1991.
Car prices fell 0.8 percent in December. Tobacco prices, however, jumped 0.8 percent. For the year, tobacco was up 13.1 percent, the fifth consecutive double-digit rise.
The various changes left the Producer Price Index for finished goods at 121.9 points in December, before adjusting for seasonal factors. This compared to 122.0 in December 1990 and meant that a market basket of goods that cost $122 a year ago cost $121.90 last month.