- The Washington Times - Saturday, December 14, 2002

Falling costs for gasoline, cars, computers and sporting goods helped push wholesale prices down in November by the largest amount in six months, a potential benefit for consumers but a profit squeeze on some companies.
The Producer Price Index, which measures prices paid to factories, farmers and other producers, dropped by 0.4 percent in November from the previous month, the Labor Department reported yesterday.
The decline, which surprised analysts who were predicting a flat reading in the PPI, came after wholesale prices shot up by 1.1 percent in October.
While October's spike was led by big jumps in energy and car prices, November's drop reflected steep declines in those costs.
"The inability of many companies to raise prices in a lackluster business environment doesn't bode well for corporate profitability," said economist Richard Yamarone of Argus Research Corp. "Lower prices for a company's product means lower revenues and thus weaker profits."
Assuming they show up in lower retail prices, falling wholesale prices are one of the few benefits of a weak economy for consumers. For businesses, the picture is mixed. Companies whose product prices are going down may feel even more pressure on already-strained profit margins. But companies that buy those lower-priced goods might get a break through cheaper costs to do business.
The 0.4 percent decline in the PPI in November from the previous month matched a drop in wholesale prices registered in May.
With inflation clearly a no-show, the Federal Reserve left interest rates unchanged Tuesday at a 41-year low of 1.25 percent. At the Fed's previous meeting on Nov. 6, policy-makers slashed rates by a bold half-point. That was the first rate cut this year.
One reason behind November's reduction was Fed policy-makers' interest in warding off a risk of deflation, a prolonged bout of falling prices.
"A failure to take action that was needed because a faltering economic performance would increase the odds of a cumulatively weakening economy and possibly even attendant deflation," the Fed said in minutes of the November meeting.
One week after Nov. 6, Federal Reserve Chairman Alan Greenspan, appearing on Capitol Hill, dismissed worries that the Fed was in danger of running out of ammunition just at a time when economic weakness could trigger deflation.
He said the United States was not "close to a deflationary cliff." If such a threat should emerge, Mr. Greenspan said, the Fed would be prepared to use a variety of tools to boost the money supply beyond its normal approach of targeting the federal funds rate.
For the 12 months ending with November, wholesale prices rose by only 0.9 percent.
"Congress and the White House can consider fresh economic stimulus without undue fear of reviving inflation," said Jerry Jasinowski, president of the National Association of Manufacturers, whose members have been struggling with the uneven economic recovery.

Sign up for Daily Newsletters

Copyright © 2019 The Washington Times, LLC. Click here for reprint permission.

The Washington Times Comment Policy

The Washington Times welcomes your comments on Spot.im, our third-party provider. Please read our Comment Policy before commenting.


Click to Read More and View Comments

Click to Hide