The biggest leap in energy prices in nearly 10
years made wholesale inflation in March rise 1 percent for the
second month in a row. But outside energy, prices were
well-behaved. Meanwhile, soaring gasoline prices helped push up
retail sales by a faster-than-expected pace.
The government reports, released Thursday, show that the
speeding economy continues to be fueled by hardy consumer spending,
yet aside from the surge in energy prices, inflation remains quiet,
Given the outlook that Americans will continue to spend freely
in the months ahead, thus supporting strong economic growth, many
analysts believe the Federal Reserve will boost interest rates by
at least a quarter of a percentage point on May 16.
"The economy is on fire but even with the strong growth,
inflation remains a no-show outside of energy," said economist
Richard Yamarone of Argus Research Corp. "For retailers, every
month is Christmas."
The Fed has boosted interest rates five times since June 30 to
slow the economy and keep inflation under control.
The 1 percent advance in the Labor Department's Producer Price
Index, which measures inflation pressures before they reach the
consumer, was a worse showing on inflation than many analysts
expected. But they didn't view it as worrisome because the increase
was contained to surging energy prices reflecting a crude-oil
Outside the volatile energy and food categories, the "core"
rate of inflation at the wholesale level rose a tiny 0.1 percent,
right on target with many analysts' predictions, suggesting that
most other prices were tame.
Fed Chairman Alan Greenspan, in an appearance before Congress,
said: "There are a lot of indications of prices going up. If you
look, however, at the underlying cost structure of American
business, I see no evidence of an acceleration" in inflation.
In February, wholesale prices shot up 1 percent, the largest
gain in nearly 10 years, propelled by hefty increases in energy
costs. But the core rate rose a modest 0.3 percent.
On the retail front, sales rose 0.4 percent in March, twice as
fast as economists expected. Excluding the volatile category of car
sales, which fell sharply, March's total retail sales were up a
sizable 1.4 percent.
Consumers snapped up building supplies and clothing, but the
biggest boost came from gasoline sales, which rose 4 percent
reflecting higher prices at the pump, the Commerce Department said.
Economists said they were surprised by the strength of March's
retail sales given that most Easter-related sales didn't occur
"What happened to the `drop' in `shop `till you drop?"'
wondered economist Joel Naroff of Naroff Economic Advisors.
The surge in March's wholesale prices stemmed from a huge 5.8
percent gain in energy prices, the sharpest rise since October
Gasoline prices went up a sizable 14.9 percent, the largest gain
since April. Prices for liquefied petroleum gas, such as propane,
rose a whopping 28.5 percent, also the biggest jump since October
Production limits by oil-producing nations largely accounted for
the rise in energy costs. Crude oil prices hit the $34-a-barrel
mark in early March, the latest in a series of nine-year highs,
sending gasoline prices soaring. But a decision by oil-producing
countries to boost production should eventually provide some
Food prices, meanwhile, rose a scant 0.1 percent last month as a
record 30.6 percent decrease in egg prices helped offset rising
prices for vegetables, pork and beef.
In another report, the number of Americans filing new claims for
unemployment benefits last week rose by 3,000 to 264,000, but still
left claims in a range suggesting that companies are scrambling to
find qualified workers.