Wholesale prices steady as economy remains lackluster

Thursday, January 16, 2003 By JEANNINE AVERSA Associated Press

WASHINGTON - Wholesale prices held steady in December as the sputtering economy made it difficult for some companies to charge more.

The flat reading in the Producer Price Index, which measures prices paid to factories, farmers, and other producers, came after wholesale prices fell by 0.4 percent in November, the Labor Department reported Wednesday. Excluding energy and food prices, which can swing widely, core wholesale prices dipped by 0.3 percent in December for the second straight month, suggesting some good deals are out there.

The Federal Reserve, meanwhile, painted a picture of a lackluster economy in its latest survey of business conditions. It found "subdued growth" in economic activity from mid-November through early January and little change in overall conditions.

The Fed said its regional banks used such words as "sluggish," "soft," and "subdued" to characterize growth.

The Fed said the weakest report came from Dallas, which said activity "remained anemic."

Policymakers will consider those findings when they next meet, Jan. 28-29, to decide the course of interest rates. Economists believe the Fed, which has pushed rates to a 41-year low, will leave them unchanged, preferring to see whether it has done enough to energize the economy.

On Wall Street, stocks fell on mixed earnings news from Intel Corp. The Dow Jones industrial average lost 119.44 points, closing at 8,723.18.

In the Labor Department report, wholesale costs were flat. Falling prices for computers and cars offset higher prices for gasoline and other energy products.

Those declining prices - if passed on to shoppers - benefit consumers, but squeeze some companies' profits.

Businesses whose product prices are dropping may feel more pressure on already strained profit margins. But companies buying those lower-price goods might get a break through reduced costs of doing business.

"With demand uncertain, many businesses have very weak, very uncertain pricing power," said economist Clifford Waldman, president of Waldman Associates. "Businesses, especially manufacturers, are struggling with the up-and-down recovery."

The latest snapshot of wholesale prices showed that inflation is not a danger to the economy, which is struggling to recover from the 2001 recession.

That inflation has remained under control is one of the reasons Federal Reserve Chairman Alan Greenspan and his colleagues have kept short-term interest rates at low levels in an effort to spur economic growth.

The new look on wholesale prices "is the kind of report that would make even Alan Greenspan sleep well at night," said Joel Naroff, president of Naroff Economic Advisors.

For all of 2002, wholesale prices rose a tame 1.2 percent, compared with a 1.6 percent drop in 2001.

Last year's pickup largely reflected rising energy costs. Energy prices rose 11.9 percent in 2002, a turnaround from a 17.1 percent decline in 2001.

In December, energy prices rose 0.9 percent, compared with a 1.8 percent drop in November.

Energy prices have been affected by supply disruptions due to a strike in Venezuela, a major oil exporter to the United States, and fears that a possible war with Iraq could impede the flow of oil.

Gasoline prices in December went up 1.6 percent. Home heating oil prices rose 4.7 percent. Liquefied petroleum gas, such as propane, rose 7 percent, the biggest increase since September. Residential electric power increased 0.6 percent.

Food prices went up 0.4 percent in December, following a 0.3 percent increase.

Those price increases were offset by lower prices elsewhere.

Car prices last month dropped 2 percent and truck prices fell 1.6 percent, the biggest decline since July. Computer prices fell 2 percent and telephone equipment prices went down by 1.3 percent.

Separately, the Commerce Department reported that businesses boosted stockpiles of unsold goods by 0.2 percent in November from the previous month - a possible sign that companies were betting there would be an appetite for their products.

Businesses' sales, meanwhile, rose 0.3 percent in November.