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Producer prices tumble
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February 18, 1998: 10:04 a.m. ET
Drop of 0.7 percent is sharpest in four years; core rate is down 0.1 percent
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NEW YORK (CNNfn) - Producer prices posted a unexpectedly sharp drop of 0.7 percent in January, the steepest decline in four years, the Department of Labor reported Wednesday.
Excluding the volatile oil and food sectors, which account for two-thirds of the producer price index, the January PPI fell by a more modest 0.1 percent.
The news caused bonds to rally in the early going before retreating amid concerns that Iraq could send inflation roaring back.
The 30-year benchmark Treasury bond retreated 5/32 to yield 5.81, as investors looked beyond the decline in producer prices to a major underlying factor: a precipitous plunge in oil prices.
In the past month, gasoline prices have plunged in many parts of the country, bottoming out under $1 a gallon in some regions.
But with the prospect of a military action against Iraq looming, there is apprehension that inflation could lurk on the horizon.
Despite the bond retreat, analysts touted the producer price figures as good news for the U.S. economy. Additionally, news that housing starts fell 0.3 percent in January to a seasonally adjusted annual rate of 1.53 million units was offset by the fact that single-family homebuilding was up a sharp 7 percent.
Meanwhile, the core PPI showed a more mild decline of 0.1 percent. Analysts said weak energy prices and a rising dollar that has kept a lid on recent imports also helped to tame inflation.
"This is astounding inflation performance," said David Seiders of the National Association of Home Builders. Seiders said he expects inflation to "look good" for the rest of 1998.
The extent of weakness in the January PPI had been unexpected. Previous estimates had called for a 0.2 percent decline.
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U.S. Labor Department
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