Wholesale inflation unchanged in August despite big rise in energy prices

Friday, September 13th 2002, 12:00 am

By: News On 6

WASHINGTON (AP) _ Inflation at the wholesale level was a no-show again last month despite a big jump in energy prices, while retail sales rose a surprisingly strong 0.8 percent, powered by a big gain in auto sales, the government reported Friday.

The Labor Department said its Producer Price Index, which measures inflation pressures before they reach the consumer, was unchanged in August after having fallen by 0.2 percent in July.

Meanwhile, the Commerce Department said retail sales rose a strong 0.8 percent in August following a revised 1.1 percent July increase. Much of the August gain was driven by a big jump in auto sales, reflecting cut-rate financing offers, but even outside of autos sales posted a solid 0.4 percent rise.

The solid showing in sales, which caught analysts by surprise, should help to ease concerns that the big plunge in stock prices in June and July, by shaking consumer confidence, was putting the fledgling economic recovery at risk.

Retail sales have been bolstered by the Fed's decision to keep interest rates at a four-decade low, which has boosted sales of big-ticket items such as cars and houses.

On the inflation front, energy prices did take a big jump upward in August, rising by 1 percent, reflecting upward pressure on global oil prices as concerns increase over what a possible U.S. war in Iraq could do to world supplies.

However, the rise in energy prices was offset by a 0.4 percent drop in food costs as well as declining prices for new cars and trucks and computers.

Overall, inflation has been well behaved at both the wholesale and retail levels as last year's recession and this year's faltering recovery have kept a lid on prices. Through the first eight months of this year, wholesale prices have risen at an annual rate of just 0.8 percent.

The absence of inflation pressures has been a primary reason that the Federal Reserve has been able to leave interest rates at a 40-year low throughout this year in an effort to boost what so far has been an anemic recovery from the country's first recession in a decade.

Federal Reserve Chairman Alan Greenspan, testifying before the House Budget Committee, said that the terrorist attacks of a year ago and the recent steep drop in the stock market were continuing to exert ``depressing effects'' on the economy. But he gave no hint whether the Fed might cut interest rates when policy-makers next meet on Sept. 24.

A nationwide Fed survey prepared for that meeting found that businesses in every region of the country were experiencing ``slow and uneven growth'' in late July and August. However, most analysts believe that the Fed will not cut rates but instead will be content to leave the overnight bank lending rate at 1.75 percent.

The report on inflation found that outside of the volatile food and energy sectors, inflation was also non-existent last month with the so-called core rate of inflation actually falling by 0.1 percent after having dropped an even larger 0.3 percent in July.

So far this year, this core inflation rate is dropping at an annual rate of 0.5 percent.