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1996 | 08 | 12 | Articles | The Wall Street Journal | Business | Economics
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The Wall Street Journal
August 12, 1996
Producer Prices Stayed Flat Even as the Economy Surged
By STEWART UGELOW
Staff Reporter of THE WALL STREET JOURNAL

Despite surging second-quarter economic growth and tight labor markets, wholesale prices remained unchanged last month, the Labor Department said.

The stable prices at the producer level offer a further sign that inflation is under control, analysts said. Bonds were up sharply on the news Friday, with the Treasury Department’s benchmark 30-year issue closing Friday at 100 23/32, up 23/32 point.

"It just doesn’t get much better than this," with declining inflation and strong real growth, said Chris Varvares, a forecaster at Macroeconomic Advisers L.L.C. in St. Louis. The producer price index, which tracks price fluctuations at the producer level, and the consumer price index, its retail-level counterpart that will be released Tuesday, help economists to measure inflation.

The report gives the Federal Reserve yet another reason not to raise interest rates at its Aug. 20 meeting, after data earlier this month indicated average wages and factory orders have fallen recently. Indeed, there were few hints of out-of-control growth in July wholesale prices. Energy prices, which have declined for three months in a row, fell 0.9%, though they were offset by a 0.2% increase in food prices. Automobile prices also fell 0.9%. Excluding the volatile food and energy components, producer prices rose 0.1%.

Not only were prices for finished goods unchanged, but those of intermediate materials that need further processing — such as flour, yarn and lumber — fell 0.3%, excluding food and energy. Similarly, prices for raw materials — like cotton and coal — fell 1.6%. Those drops indicate there is little inflation in the pipeline, analysts said. "If you’re looking at the crude prices, there doesn’t seem to be much pressure there at all," Bureau of Labor Statistics economist Scott Sager said. All figures were seasonally adjusted.