Tumbling gasoline costs helped to drive wholesale prices down sharply last month, the government said Friday, while two other reports indicated that the nation`s economic activity was still far from robust.
Producer prices of finished goods fell a seasonally adjusted 0.7 percent in January for their biggest drop in three years, according to the Labor Department. The drop surprised many economists who had been looking for either a smaller decline or a slight increase.
Moreover, the decline reversed a rising trend shown in the last few months. The government`s index of producer prices rose 0.5 percent in December and 0.7 percent in November, mainly because of higher food costs.
”The price news was really very good,” said economist Evelina Tainer, of First National Bank of Chicago. ”In addition to energy, the numbers were weak for many other components of the index. It points to a continued moderate inflation rate in the months ahead.”
”There was an across-the-board indication of no inflation at the wholesale level,” added William Sullivan, economist at Dean Witter Reynolds Inc.
Energy costs dropped 4.2 percent in January, reflecting a 5.7 percent decline in gasoline prices and a 10.8 percent retreat in heating oil costs.
Wholesale costs for consumer foods fell 0.4 percent after rising 0.7 percent the preceding month. Prices of nonfood items dropped 0.7 percent after a 0.5 percent increase in December. Capital equipment costs fell 0.1 percent after rising 0.1 percent.
Coffee was the only item in the price index to show a marked increase, soaring 17.4 percent in response to a prolonged drought in Brazil.
In two other economic reports, the Federal Reserve Board said the nation`s industrial production rose 0.3 percent in January, less than many economists had predicted. That followed gains of 0.7 percent in December and 0.8 percent in November.
Inventories of U.S. businesses fell $569 million, or 0.1 percent, in December for the first decline since August, 1985, the Commerce Department said. It revised the inventory rise for November down to 0.1 percent from the original report of 0.2 percent.
”The reports, in combination with Thursday`s report on retail sales, show that the economy is still pretty weak,” Tainer said. ”They tend to negate last week`s report of a sharp increase in employment for January.”
However, Richard S. Peterson, senior vice president and chief economist at Continental Illinois National Bank and Trust Co. of Chicago, said the January reports ”are coming off of high numbers in December and confirm our belief that the gross national product will be up about 4 percent in the first quarter, with continued low inflation.”
Over the last year, producer prices have risen just 1.4 percent, bolstering the view of economists who believe inflation will continue to be restrained this year.
Prices for gasoline and other energy products probably will drop further in the next few months as the recent plunge in worldwide petroleum prices works through the industry, Tainer predicted.
”That doesn`t mean we`ll see a decline in the consumer price index; but it also means changes in the CPI will remain modest,” she said.
Donald Ratajczak, director of the economic forecasting center at Georgia State University, said petroleum prices may fall by 15 percent through 1986 and not reach a low point until 1987.
Michael Evans, president of an economic forecasting service based in Washington, said the real impact of lower oil prices on gasoline and petroleum products will be more apparent when the figures for February are in.
”The fireworks won`t come until next month,” Evans said.
The January decline in the overall producer price index was the first drop since September and the biggest since a 0.9 percent decline in January, 1983.
Natural gas prices, one of the few to head upward, increased 0.5 percent in January.
Vegetable prices, which had climbed 15.3 percent in December, largely because of cold weather in Texas, fell 9.7 percent in January.
Automobile prices fell 1.3 percent, reflecting low-interest auto financing packages offered by automakers. Light truck prices fell 1.6 percent. Alcoholic beverage prices rose 0.2 percent while soft-drink costs were up 0.3 percent.
Clothing prices fell generally, with children`s and infants` apparel showing the sharpest decline of 0.8 percent.
Prescription drug prices rose 2.9 percent while over-the-counter preparations rose 0.9 percent.
If last month`s 0.7 percent decrease held steady for 12 consecutive months, the yearly rate would be a 7.8 percent drop
