Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SATURDAY, March 14, 1992 TAG: 9203140123
SECTION: BUSINESS PAGE: A-8 EDITION: METRO
SOURCE: Associated Press
DATELINE: WASHINGTON LENGTH: Medium
Analysts blamed heavy rains and flooding in the prime winter vegetable states of California and Texas for the spurt in food prices, but contended that the underlying inflation rate showed no threat of getting out of control even as the economy exhibited new signs of life.
A second report Friday from the Commerce Department said that businesses managed to work down inventories for the first time in five months.
Analysts said the inventory reduction, coupled with a report earlier this week that retail sales bounced back strongly in January and February, was setting the stage for increased production and a growing economy in the months ahead.
"At this point, these are the types of economic conditions you want to have," said Donald Ratajczak, director of economic forecasting at Georgia State University. "The recovery is probably very near if not already here and there is no inflation."
The Labor Department said the tiny 0.2 percent increase in its Producer Price Index for goods one stop short of retail followed two straight monthly declines. So far this year, inflation at the wholesale level is falling at an annual rate of 0.5 percent.
Analysts said the recession and prolonged period of weak demand the country has gone through had banished inflation as a threat for some time to come.
Many forecasters were predicting that wholesale prices would rise by around 2 percent this year and consumer prices would climb by around 3 percent. Coupled with the performance last year, that would give the country its best news on inflation since the mid 1960s.
While food prices at the wholesale level had fallen in eight of the last nine months, they climbed 1.1 percent in February, their biggest increase since January 1990.
The jump was led by a 26 percent rise in vegetable prices, which was blamed on shortages caused by heavy rains in California and Texas. Prices rose more modestly for eggs, beef and pork.
Energy prices fell for a third straight month although the 0.1 percent decline was much smaller than the December and January decreases.
Gasoline and home heating oil costs were up last month, rising by 1.9 percent and 16.2 percent respectively, but those gains were offset by 1 percent drops for electricity and natural gas prices.
The spate of good news in recent days showing rising retail sales, factory orders and home sales has sent some economists rushing to boost their forecasts of economic growth to show at least a tiny gain in the January-March quarter and growth at a respectable rate of around 2.5 percent in the next quarter.
William Dunkelberg, chief economist for the National Federation of Independent Businesses, said its February survey showed increasing optimism among the country's small businesses.
Supporting that view, 47 percent of 490 executives surveyed at random in a New York Times-CBS News poll said they were convinced that the economy was getting better while only 9 percent believed things were getting worse.
Some economists, however, cautioned against reading too much into the upswing in confidence, noting that the economy was still facing major problems in the form of weak banks, falling real estate prices and heavy debt burdens.
"I sense that the mood has improved from the worst of the winter, but there is still an awful lot of skepticism about the staying power of this recovery," said Roger Brinner, an economist at DRI-McGraw Hill.
Another report Friday from the Federal Home Loan Mortgage Corp. showed that the average interest rate for 30-year, fixed-rate mortgages climbed to 8.88 percent this week, the highest in five months.
Outside the volatile food and energy categories, wholesale prices rose a tiny 0.1 percent in February, the best performance since June.
Prices for passenger cars, alcoholic beverages and soap fell last month, helping to offset price increases for magazines and prescription drugs.
by CNB