ROANOKE TIMES Copyright (c) 1997, Roanoke Times DATE: Monday, February 17, 1997 TAG: 9702170084 SECTION: BUSINESS PAGE: A-6 EDITION: METRO DATELINE: WASHINGTON SOURCE: Associated Press
Prices at the wholesale level, pulled down by tumbling food costs, posted the first decline in more than two years in January, while output at the nation's factories moderated.
``That means more thumbs-up for the economy,'' said economist Robert Dederick of Northern Trust Corp. in Chicago. ``Growth isn't running amok, and as a result, inflation is well-contained.''
Prices charged by producers ranging from farms to factories fell a seasonally adjusted 0.3 percent in January, compared with a worrisome 0.6 percent increase in December, the Labor Department said Friday.
The Producer Price Index measures the cost of goods before they reach consumers. Its movements offer important clues for the future behavior of the Consumer Price Index, which tracks the price of services and retail goods.
January's drop in prices of producers' finished goods was the first since a 0.4 decrease in October 1994. It was helped by a 1 percent decrease in foods, the steepest in 51/2 years, and a 0.2 percent decline in energy.
But even excluding food and energy, where prices can fluctuate wildly, so-called core prices were unchanged last month after rising just 0.1 percent in December.
Meanwhile, another report showed production at the nation's factories, mines and utilities was unchanged in January after rising 0.5 percent in December. At factories alone, production fell 0.2 percent after strong gains in November and December.
``This is not a sign that manufacturing is going down,'' said economist Stuart Hoffman of PNC Bank Corp. in Pittsburgh. ``Its more like it's catching its breath.''
The operating rate for U.S. industry slipped to 83.3 percent in January from 83.5 percent a month earlier, indicating room for moderate growth without inflationary bottlenecks developing.
In another sign of a well-balanced economy, business inventories fell 0.1 percent in December after holding unchanged in November, the Commerce Department said. An unwanted buildup in inventories can cause layoffs and production cutbacks as businesses try to clear warehouses and back lots.
For all of last year, producer prices rose 2.8 percent, the biggest increase in six years, but core prices rose only 0.6 percent. This year, economists expect an overall producer price rise of about 2.5 percent and a core increase of roughly 1.5 percent.
Last month, prices fell for beef, pork and poultry, and eggs dropped 19.8 percent. However, vegetables shot up 4.2 percent, pushed higher by big increases for squash, eggplant, green peppers and broccoli.
Analysts expect a bigger rise in fruit and vegetable costs in February because of a late-January freeze in South Florida.
Within energy, a 2.8 percent drop in fuel oil prices was counterbalanced by a 2.6 percent increase in gasoline.
Outside of food and energy, prices fell for passenger cars and men's and boys' clothing. That was offset by increases for prescription drugs, alcoholic beverages, light trucks and tires.
Inflation also was tame at the intermediate stage of processing, with prices up 0.2 percent. But they shot up 5.2 percent at the crude level because of increases for aluminum and copper.
An example of the three processing stages would be bread for the finished product, flour for intermediate and wheat for crude.
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