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Wholesale prices jump
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September 10, 1999: 6:50 p.m. ET
August PPI up 0.5%, driven by energy price surge; 'core' rate falls
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NEW YORK (CNNfn) - Rising energy costs drove wholesale prices higher than expected during August, but a surprising decrease in so-called "core" prices left investors and economists confident inflationary pressures were under control.
The producer price index, a key gauge of prices before they reach consumers, rose 0.5 percent in August, the Labor Department said, above both economists' forecasts for a 0.3 percent rise and July's 0.2 percent increase.
But the so-called core PPI rate, which strips out volatile food and energy prices and is closely watched by the Federal Reserve as a key indicator of inflation, actually dropped 0.1 percent.
Economists, who had expected the core rate to gain 0.1 percent, said the decrease should all but eliminate a possible interest rate hike from the Fed next month -- and investors seemed to agree.
Although blue chips fell during the day, interest rate-sensitive technology stocks rallied on the report, pushing the tech-laden Nasdaq composite index to a record-breaking close. The inflation-wary 30-year Treasury bond also like the report, closing up 23/32 with a yield of 6.04 percent.
"I think for all intent and purposes, you really have to rule out a Fed rate hike on October 5," said Richard Yamarone, senior economist with Argus Research. "We're not out of the water yet. We still have [the consumer price index] coming out next Tuesday.
"But so far three of the four [key interest rate reports] have come out looking really good and the Fed's going to have to really stretch to get that next rate hike."
Mostly an energy story
Economists blamed the jump in overall prices on a 3.7 percent jump energy costs, including a 9.1 percent spike in gasoline prices and a 5.3 percent increase in heating oil costs.
Meanwhile, food prices rose a surprising 0.4 percent after falling 0.9 percent in July.
Outside those sectors, the numbers were more encouraging. For example, prices for computers and related equipment fell 3.2 percent.
Still, there are indications of stronger inflationary pressures further back in the production pipeline. Prices for crude goods such as wheat, for instance, rose a sharp 4.6 percent in August.
Bill Sullivan, a money market economist with Morgan Stanley Dean Witter, said such price pressures down the road could sway the Fed, particularly if commodity prices continue to rise.
"You can only ignore energy so long," he said. "These commodity price increases are laying the groundwork for future increases in price pressures."
But for now, most experts agree those figures will likely not be enough to sway Fed officials, who rose short-term interest rates twice this summer to head-off possible jumps in inflation, when they convene next month.
""These numbers have been a little bit weaker than they were over the past two months, and we think it calms the Fed down to some extent," said Hussein Malik, a bond market analyst at J. P. Morgan. 
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