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Friday February 16, 10:52 am Eastern Time

Wholesale Prices Jumped in January

Wholesale Inflation Jumped 1.1 Percent in January, the Biggest Jump in a Decade, Reflecting a Record Rise in Natural Gas Prices and Higher Costs for Foods, Cars and Cigarettes

By JEANNINE AVERSA

Associated Press Writer

WASHINGTON (AP) -- Wholesale inflation shot up by a surprising 1.1 percent in January, the biggest jump in a decade, reflecting a record rise in natural gas prices and higher costs for food, cars and cigarettes. Industrial production fell for the fourth straight month.

The Producer Price Index, which measures inflation pressures before they reach store shelves, followed a mild 0.2 percent increase in December, the Labor Department reported Friday.

Many analysts had expected a 0.3 percent rise in January.

The leap was led by record price increases for natural gas used in homes, for powering electric utilities and in industrial production. However, price increases for other goods were widespread.

The report did nothing to stabilize stock prices. In the first hour of trading, the Dow Jones industrial average lost 69 points and the Nasdaq index fell 117 points.

In another report, the Federal Reserve said output at the nation's factories, mines and utilities dropped by 0.3 percent in January, further evidence of the economic slowdown. Many analysts had expected a stronger showing, following the steep 0.5 percent decline posted in December.

January's performance was led by a sharp, 6 percent decline in output at gas and electric utilities, reflecting moderating temperatures after December's extreme cold.

Operating capacity, meanwhile, fell to 80.2 percent in January, the lowest since August 1992, as companies cut back in response to slackened demand.

The PPI report also showed that prices for goods other than food and energy products -- which can swing widely from month to month -- rose a sharper-than-expected 0.7 percent in January, following a slim 0.1 percent rise the month before. Analysts were forecasting a 0.1 percent rise in this ``core'' rate of inflation.

The 0.7 percent reading in the core rate was the highest since a 1.0 percent rise in December 1998.

The Federal Reserve slashed interest rates by a full percentage point in January, in an effort to prevent the weakening economy from slipping into a recession. One of the reasons Fed policy-makers cited for being able to act so aggressively was that inflation -- outside the burst in energy prices -- had remained in check.

One area of the economy that has held up well during the sharp economic slowdown has been the housing sector. That strength was evidenced in another report Friday from the Commerce Department showing that new housing construction rose by 5.3 percent in January to a seasonally adjusted annual rate of 1.65 million units.

The 1.1 percent rise in wholesale prices was the largest since a 1.3 percent increase registered in September 1990.

In January, energy prices rose 3.8 percent, the biggest increase since a 6.1 percent spike in June.

Residential natural gas prices rose by an all-time monthly high of 11.3 percent, surpassing the previous record set in December. Liquefied petroleum gas, such as propane, rose 15.3 percent, the biggest increase since July. Gasoline prices rose 1.6 percent and residential electric power costs went up by 1.4 percent.

The trend of rising energy costs reflects production limits and strong demand.

The price of natural gas used to power electric utilities rose by a whopping 64.4 percent in January, a monthly record. The previous all-time high increases was 24.6 percent posted in December. Prices for natural gas used in industrial production rose by a record 46 percent in January, the largest increase in five years.

Meanwhile, prices for food items rose 0.8 percent in January, the largest gain since a 1.1 percent rise in April. Higher prices for vegetables, fruits, dairy products and beef swamped lower prices for pork.

Elsewhere in the report, prices for cigarettes rose 6.3 percent, the largest increase since February 2000. Companies have been raising prices to cover the costs of litigation. Car prices increased 1.2 percent, the highest since October 1999, when they rose by 1.4 percent.

-- (M@rket.trends), February 16, 2001