ROANOKE TIMES
Copyright (c) 1995, Roanoke Times
DATE: Wednesday, December 13, 1995 TAG: 9512130016
SECTION: BUSINESS PAGE: B-8 EDITION: METRO
DATELINE: WASHINGTON
SOURCE: Bloomberg Business News
U.S. inflation accelerated in November as food prices rose and auto costs posted the largest gain in two years. The unexpectedly sharp rise in prices may jeopardize chances that the Federal Reserve will call for lower interest rates.
Prices paid to factories, farmers and other producers rose a larger-than-expected 0.5 percent for the month, the biggest increase since January, the Labor Department said Tuesday.
Analysts had expected a 0.2 percent rise in the November producer price index. In October, producer prices decreased 0.1 percent.
The PPI core rate, which excludes often-volatile food and energy costs, measures prices of goods at the wholesale level. The Consumer Price Index, the primary measure of retail prices, will be reported for November on Thursday.
The PPI increased 0.4 percent in November - the biggest gain since January - after showing no change in October. Higher auto costs accounted for three-fourths of the rise.
The larger-than-expected increase suggests Federal Reserve officials will refrain from lowering interest rates at a policy meeting Dec. 19. Fed officials may not act until they see signs inflation is settling down.
Even a hint of accelerating inflation ``lowers the probability the Fed will act'' next week, said Peter Kretzmer, an economist at NationsBank Corp. in New York.
After seven interest-rate increases aimed at cooling consumer spending and containing prices, the Fed lowered its target for a key overnight bank lending rate by a quarter point to 53/4 percent on July 6 to spur economic growth. It was the first such reduction in almost three years. They took no immediate action at subsequent meetings in August, September and November.
Tuesday's report did contain some positive inflation news. Energy costs declined in November for the sixth consecutive month as gasoline prices fell. Prices for semi-finished goods, meanwhile, showed no change last month, though prices for raw materials increased 1.6 percent.
The inflation report suggests that businesses may be growing bolder in passing along to customers their higher raw materials costs. Analysts anticipate a 0.2 percent increase in the CPI.
Wholesale price inflation was running at a 1.8 percent annual rate for the first 11 months of the year, up from a 1.6 percent pace in the first 11 months of 1994 and 1.7 percent for all of last year.
Wholesale food prices, which make up 22.8 percent of the index, jumped 1.2 percent in November - the largest increase since last December - fish, poultry, fruit and beef prices rose. Vegetable costs, however, declined.
Wholesale auto prices rose 1.3 percent, the biggest gain since November 1993.
Producer energy prices, which make up 13.6 percent of the index for finished goods, fell 0.5 percent in November. Gasoline costs fell 3.8 percent, while home heating oil prices climbed 7.3 percent as temperatures turned colder.
November wholesale tobacco prices showed no change from a month earlier.
In the weeks since the Labor Department collected data for the November PPI, another measure of inflation has registered an increase. The Goldman, Sachs & Co. commodity index, which measures energy, agriculture, industrial and metal prices, has risen 3.0 percent since Nov. 30.
The January crude oil future contract traded on the New York Mercantile Exchange closed yesterday at $18.66 a barrel, up 2.6 percent from $18.18 on Nov. 30.
LENGTH: Medium: 70 lines ILLUSTRATION: GRAPHIC: Chart by AP.by CNB