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The Honolulu Advertiser
Posted on: Wednesday, May 21, 2008

Wholesale inflation slows, but consumers find no relief

By Martin Crutsinger
Associated Press Economics Writer

WASHINGTON — Wholesale inflation slowed in April following a big jump in March but the improvement is likely to be temporary as consumers are battered in coming months by price hikes for gasoline, food and a host of other items.

Most worrisome of all, analysts said, were indications that surging energy and food costs were spreading to other parts of the economy, causing more widespread inflation problems.

For April, wholesale inflation was up 0.2 percent, the Labor Department reported yesterday, following a much bigger 1.1 percent jump in March.

While that was lower than expected, the closely watched core inflation reading, which excludes energy and food, jumped by 0.4 percent, double what had been expected.

Over the past 12 months, core inflation has risen by 3 percent, the highest reading in more than 16 years.

The pressures in April came from a number of areas with the price of new cars, toys and pharmaceutical products all showing increases. Commercial furniture prices jumped by the largest amount in 27 years. Analysts said some of this is probably reflecting the weaker dollar, which is driving up the cost of imports.

Consumers, already struggling with record higher gasoline prices and rising food bills, could now start to see price increases in these other areas as well, economists said, noting that the price of products at earlier stages of production showed even bigger increases in April.

"We can see a steady spreading of wholesale price increases into the more general economy," said Joel Naroff, chief economist at Naroff Economic Advisors. But he said the weak overall economy, which is flirting with a recession, may restrain the pressures now building up.

"Firms may not have the pricing power in this soft economy," he said, saying businesses may end up taking a hit to their profit margins because of the higher cost to produce goods rather than being able to pass those costs on to consumers.

For April, food prices were unchanged, reflecting wide cross currents with the price of eggs and vegetables showing big declines while the price of rice jumped by 17.4 percent, the biggest one-month gain in more than 14 years. The cost of pasta, chicken and dairy products also posted big increases.

The Agriculture Department on Monday boosted its estimate of how much food costs will rise this year, projecting a gain in the range of 4.5 percent to 5.5 percent, approaching levels not seen in the United States since 1990.

The higher food prices have been blamed on a variety of factors from rising global demand to higher energy prices pushing up transportation costs and the diversion of cropland to the production of corn for ethanol rather than food.

The report on the PPI, which measures price pressures before they reach consumers, followed news last week that consumer prices rose by just 0.2 percent in April even though food costs soared by the largest amount in 18 years.

Wholesale energy prices fell by 0.2 percent in April after a 2.9 percent surge in March. The PPI report showed that gasoline costs fell by 4.6 percent although before adjusting for seasonal factors, wholesale gasoline was up 3.2 percent last month.