Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: FRIDAY, December 10, 1993 TAG: 9312100160
SECTION: BUSINESS PAGE: B-11 EDITION: METRO
SOURCE: Associated Press
DATELINE: WASHINGTON LENGTH: Medium
paid to producers such as farms and factories were unchanged last month after falling 0.2 percent in October, the Labor Department said Thursday.
It was the seventh consecutive month the Producer Price Index either held steady or declined.
Nevertheless, speculation is increasing that the Federal Reserve will seek to maintain low inflation with a small increase in short-term interest rates. Treasury Secretary Lloyd Bentsen all but conceded that will happen.
"Short-term rates, over a period of time, obviously they're going to rise some. But I would not estimate that that would be anything major," he told reporters at the White House.
The Fed has held its benchmark federal funds rate at a three-decade low of 3 percent for 15 months. But now that economic growth is picking up, many analysts are looking for a quarter-point increase in the first three months of the year.
"You don't want to wait for inflation to actually start accelerating before you tighten [interest rates]. By then, it's too late," said economist Paul W. Boltz of T. Rowe Price Associates in Baltimore.
Still, Thursday's producer price report displayed little evidence of increasing price pressures, and a similar result was expected in a report today on consumer prices.
For the first 11 months of the year, producer prices rose at a 0.4 percent annual rate. Consumer inflation has been running just under 3 percent this year and last, after a decade of fluctuating between 4 percent and 5 percent.
"The Fed can't wait until inflation gets to 4 percent again before they do something," Boltz said. "That would be a grotesque repetition of the 1970s."
Energy prices fell 2.7 percent, pulled down by a 5.8 percent drop for gasoline, the steepest in 11 months, and an 11.9 percent plunge for home heating oil, the biggest in 23 months.
Residential electricity fell 1.3 percent, the largest one-month decline on record.
Food prices rose 0.8 percent after falling 0.5 percent in October. Vegetables jumped 18.1 percent and rice was up 29.3 percent after increasing 21.4 percent the month before. The vegetable increase also included increases of 332 percent for cucumbers, 253 percent for squash, 108 percent for snap beans and 104 percent for tomatoes.
Excluding the volatile food and energy sectors - the so-called core rate - prices rose 0.4 percent after falling 0.5 percent a month earlier. That briefly flustered financial markets, but Steinberg said it mostly was the result of an aberration in new-car prices.
by CNB