Wholesale Prices Leap Most in 34 Years

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The New York Sun

WASHINGTON — A record jump in gasoline prices pushed wholesale inflation up at the fastest pace in more than three decades in November, while retail sales showed unexpected strength.

The Labor Department said today that wholesale prices rose by 3.2% last month, the biggest increase in 34 years, reflecting a 34.8% surge in gasoline prices. And outside of energy and food, so-called core inflation posted a 0.4% jump, double what had been expected.

But in more upbeat economic news, the Commerce Department reported that retail sales increased by a better-than-expected 1.2% last month. It was the biggest sales advance in six months and reflected widespread strength in a number of areas from department stores to clothing shops and furniture stores.

Economists said the retail sales gain should ease concerns that the economy is about to tumble into a recession, although they said overall growth in the current quarter is still likely to be weak given the headwinds battering consumers. Those troubles include the slump in housing, a severe credit crunch, and surging energy costs.

All of these problems have pushed consumer confidence down to the lowest point in two years, leading economists to forecast a subpar performance by holiday shoppers this year.

The big jump in wholesale prices was worrisome, economists said, because it was not limited to energy. That suggests that the relentless surge in energy prices could be spreading into more widespread inflation, something that would raise alarm bells at the Federal Reserve.

“I think the Fed has some worries on inflation,” a chief economist at Standard & Poor’s in New York, David Wyss, said. “We are starting to see some leakage from energy into other areas of the economy.”

At the White House, a spokeswoman, Dana Perino, said that one bad report on inflation “doesn’t make a trend.”

“Inflation has remained remarkably low, even in the face of high energy prices,” Ms. Perino said. “We’re confident that Chairman Bernanke takes price stability seriously and considers the risk of inflation in the Fed’s policy decisions.”

The Fed, struggling to get credit flowing again and to ward off a downturn, cut a key interest rate this week for the third time this year and also announced a global effort with other central banks to pump fresh cash into the banking system.

Mr. Wyss said the stronger-than-expected November retail sales performance would probably cause analysts to lift their forecasts for overall growth in the October-to-December quarter to slightly above 1%.

Many had trimmed those projections to less than 1%, believing that a slowdown in consumer spending, which accounts for two-thirds of total economic activity, and the continued drag from housing could push the country close to a recession.

“The retail sales report helps ease some of the worries about a recession, but it doesn’t make them go away altogether,” Mr. Wyss said. He said he still believed the maximum danger point for a downturn will occur in the first three months of next year.

Half of the November increase in retail sales came from a big jump in gasoline pump prices and therefore was not seen as a sign of strength in consumer demand. But there were widespread gains across a number of other areas including department stores and stores selling clothing, appliances, furniture, and building supplies. Auto sales, however, fell for a second month, dropping by 1% as domestic manufacturers continue to struggle with weak demand.


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