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Producer prices surge
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October 15, 1999: 11:03 a.m. ET
September PPI up 1.1%, biggest jump in 9 years; stocks, bonds plummet
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NEW YORK (CNNfn) - Sharp increases in the cost of tobacco, cars and energy pushed wholesale prices up 1.1 percent in September, the biggest increase in nine years and more than double economists' forecasts, according to a government report Friday.
The pace was the quickest since a 1.3 percent increase in the Producer Price Index in September 1990 and followed a 0.5 percent gain in August. Economists surveyed by Reuters had forecast a 0.5 percent increase in the index, which measures prices paid to factories, farms and refineries.
The Dow Jones industrial average sank about 200 points in early trading, approaching the psychologically sensitive 10,000 level, and bonds were under pressure in reaction to the report, which rekindled inflation fears and further rattled investors following comments Thursday night by Federal Reserve Chairman Alan Greenspan on stock trading risks.
"Everything seems to have turned bad for the stock market just in the last 18 hours," said Jim Bianco, president of Bianco Research.com.
Economists said the data make another interest-rate increase by the Federal Reserve almost a sure bet.
"This almost assures the fact that we'll see an interest rate hike in November," said market strategist Barry Hyman of Ehrenkrantz King Nussbaum Inc.
Excluding the often-volatile food and energy segment, the index's core rate rose 0.8 percent, also twice as high as the consensus forecast.
The Labor Department said that excluding rising prices for cigarettes, which jumped 9.5 percent, and for cars, which rose 2 percent, the core rate would have risen only 0.1 percent.
Raw materials rose 5.1 percent, up from a 4.6 percent increase a month earlier. September's growth was spurred by a 14.3 percent increase in the price of crude oil and a 13.3 percent rise in natural gas prices.
The jump in tobacco and energy prices suggests that another key inflationary indicator due for release Tuesday also will rise, said economist Kathleen Camilli of Tucker Anthony.
"The only problem is food, energy and tobacco all feed into CPI" -- the Consumer Price Index, she said. "So the number does imply that we'll see slightly higher CPI inflation in the final months of the year."
The Dow Jones industrial average plummeted 241.57 points in early trade, reaching a low of 10,045.04, but it recovered somewhat to stand at 10,108.05, down 178.56 from Thursday's close, shortly before 11 a.m. Friday.
The price of the benchmark 30-year U.S. Treasury fell immediately after the 8:30 a.m. report. But the bond later rebounded, trading up 13/32 for a yield of 6.29 percent.
-- from staff and wire reports
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Department of Labor
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