Wholesale prices jump, industrial production plunges in October

<br>WASHINGTON (AP) _ Wholesale prices shot up by 1.1 percent in October, the biggest leap in nearly two years, catapulted by sharply higher costs for gasoline, cars and trucks. Industrial production plunged

Friday, November 15th 2002, 12:00 am

By: News On 6

WASHINGTON (AP) _ Wholesale prices shot up by 1.1 percent in October, the biggest leap in nearly two years, catapulted by sharply higher costs for gasoline, cars and trucks. Industrial production plunged by the largest amount in a year.

The big jump in the Producer Price Index, which measures prices of goods before they reach stores shelves, came after a tiny 0.1 percent rise in September and a flat reading in August, the Labor Department reported Friday.

Separately, production at the nation's factories, mines and utilities fell by 0.8 percent in October, following a 0.2 percent decline the month before, the Federal Reserve reported. It marked the third straight month that industrial activity declined and was the worst showing since September 2001, when industrial production plummeted by 1.1 percent.

The latest reading on inflation at the wholesale level far exceeded analysts' forecasts. They were predicting a modest 0.2 percent rise. The industrial production report, meanwhile, also was much weaker than the 0.3 percent decline analysts were expecting.

On Wall Street, stocks moved lower. The Dow Jones industrial average lost 38 points and the Nasdaq was off 22 points in the first half hour of trading.

October's 1.1 percent increase in the PPI marked the largest advance since January 2001, when wholesale prices went up by the same amount.

Excluding energy and food prices _ which can swing widely from month to month _ the ``core'' rate of inflation rose by a sizable 0.5 percent in October, the worst showing since September 1999, and a big pickup from the small, 0.1 percent increase posted the month before.

While the PPI report was surprising to economists, they didn't believe it flashed a danger signal that the country was on the path to the twin evils of weak economic growth and upward spiraling inflation.

``We are not in danger of stagflation: a weak economy and rising prices,'' said economist Ken Mayland, president of ClearView Economics. ``I think the big price increases we saw in October _ gasoline and automobiles _ are reversible. We probably won't see them in November,'' he added.

Worried that the economic recovery might be in danger of stalling out, the Federal Reserve last week cut a key interest rate by a bold, half a percentage point, marking the first rate reduction of this year and the 12th since January 2001.

Federal Reserve Chairman Alan Greenspan, testifying on Capitol Hill on Wednesday, suggested that he is not worried that currently low interest rates would sow the seeds of inflation. And, he said the Fed can quickly reverse course and begin raising interest rates to make sure that the extraordinarily low interest rates of the past year do not drive prices higher.

In October, energy prices galloped ahead by 4.2 percent, following a 0.9 percent increase the month before. Much of October's rise in energy costs reflected skyrocketing gasoline prices, which soared by 17.9 percent, the biggest increase since March.

The Labor Department said that excluding the big rise in gasoline costs, overall wholesale prices rose by 0.6 percent, rather than the 1.1 percent spike.

The report also showed that the price of new cars rose 2.2 percent in October, the biggest increase since September 1990, and new truck prices went up by 1.9 percent, the largest advance since July. But those price increases may have been distorted by the annual introduction into the PPI of new models of cars and trucks, which tend to be more expensive.

The government said that overall wholesale prices _ excluding new car and truck prices as well as volatile food and energy prices _ nudged up by just 0.1 percent in October.

Food prices also rose sharply in October, increasing by 0.7 percent, a big turnaround from a 0.6 percent drop in September. Price increases were widespread and were led by a 11.5 percent rise in pork prices, the largest advance since January 1999.

In another report, businesses increased their stockpiles of unsold goods by 0.5 percent in September, the biggest advance since November 2000, the Commerce Department reported. That followed a tiny 0.1 percent increase in August.