Wholesale Inflation Skyrockets

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Higher energy prices fueled the worst inflation at the wholesale level in 13 years, the government said Thursday.

The producer price index jumped 1.6 percent in January, led by a 4.8 percent rise in energy costs and a 1.6 percent rise in food costs.

Inflation accelerated elsewhere as well: The core rate of inflation rose 0.9 percent, the biggest jump in about four years.

Most of the gain in core inflation was due to the 3.5 percent increase in new car prices, the biggest jump in 16 years. However, car prices have dropped 1.4 percent in the past year. Prices rose in January because some special promotions to dealers were taken away.

In three separate economic developments:

  • The government said the number of newly laid off workers filing unemployment claims jumped to a seven-week high of 402,000 last week, up by 21,000 from the previous week.
  • The U.S. recorded a $435.2 billion trade deficit for 2002, the largest imbalance in history, as the weak global economy set back American exports while imports of autos and other consumer goods were hitting all-time highs.
  • The U.S. economy may soon begin to show signs of accelerating growth, the Conference Board said. The board's index of leading economic indicators was declined 0.1 percent in January following three months of increases. Nevertheless, the board saw some good things in the numbers.

    "Despite the slight dip in January, the recent positive trend in the leading economic indicators suggests that U.S. Economic growth could advance soon," said Ken Goldstein, Conference Board economist.

    On the inflation front, producer prices are up 2.8 percent in the past 12 months. Just four months ago, the PPI had been negative year-over-year. The PPI fell 0.1 percent in December.

    Finished capital goods prices rose 0.7 percent. Light truck prices rose 4.1 percent.

    Vegetable prices rose 18.2 percent. Bakery goods prices rose 1.4 percent, the most in 12 years. Gasoline prices rose 13.7 percent while heating oil prices rose 19.7 percent.

    Price hikes were seen further back in the production pipeline as well. Crude goods prices increased 6.9 percent, led by the 11 percent rise in energy prices. The core rate for crude goods rose 1 percent. Crude goods prices are up 29.3 percent in the past 12 months.

    Intermediate goods prices gained 1.3 percent, with energy prices advancing 6.1 percent. The core intermediate rate - considered a good barometer of underlying inflationary pressures - rose 0.3 percent.

    Separately, there was more bad news for the labor market.

    The rolling four-week average of first-time claims for state unemployment benefits rose by 4,750 to 394,750 in the week ending Feb. 15, the highest in six weeks and the third straight gain, the government agency said.

    The four-week average of continuing claims rose by 26,250 to 3.34 million in the week ending Feb. 8, the first increase in five weeks. The figures do not include about 700,000 workers receiving extended federal benefits.

    The claims data are taken from reports by state unemployment offices, but this week's data include more estimates than usual because the reporting period was shortened by the Presidents' Day holiday and the storm that slammed the East Coast, a department spokesman said.

    Harder data should be available next week.

    The trade deficit was widened by weakness in areas where the U.S. is traditionally strong. Even in agricultural products, normally a U.S. bulwark, Americans bought more imported wine, cheese and other foods than American farmers were able to sell abroad, resulting in only the second U.S. trade deficit in agricultural products on record.

    The Commerce Department said the deficit for all of last year was up 21.5 percent from the $358.3 billion trade gap recorded in 2001 and surpassed the old record deficit of $378.7 billion set in 2000.

    By country, the United States ran up the largest trade gap with China, a deficit of $103.1 billion, marking the third straight year that the United States has recorded its largest trade deficit with that nation. It pushed the former front-runner in this category, Japan, into second place.

    In addition to the record for all of 2002, the United States set a new monthly high of $44.2 billion in December, up 10.5 percent from the previous record set in November of $40.0 billion.

    Meanwhile, the Conference Board's Ken Goldstein said there was a basis for optimism because the coincident index, a major barometer of current economic activity, is rising.

    The coincident index rose by 0.2 percent in January, after no change in December and a 0.1 percent rise in November. January marked the largest gain in six months for the index.

    All four indicators that make up the coincident index increased in January. They are industrial production, employees on nonagricultural payrolls, personal income less transfer payments and manufacturing and trade sales.

    Half of the 10 indicators that make up the main index increased in January, including manufacturers' new orders for consumer goods and materials, average weekly claims for unemployment insurance and interest rate spread.

    Among the negative contributors were consumer expectations, building permits and average weekly manufacturing hours.