Producer Prices Rose Scant 0.2% Last Year; Bond Market Rallies on Low-Inflation Hopes
In another sign that inflation is well under control, the government reported yesterday that the prices charged by manufacturers and other producers rose only 0.2 percent last year, reflecting stagnant wages and lower energy prices.</br></br>"Price stability is here," declared Sun Wong Sohn, chief economist at Norwest Corp., a Minneapolis banking firm. He said the report demonstrates there is no need for the Federal Reserve to nudge up short-term interest rates in a preemptive strike on inflation.</br></br>Gordon Richards, chief economist of the National Association of Manufacturers, declared that inflation had "closed out the year with a whimper rather than a bang."</br></br>From October through December, in fact, producer prices declined 0.3 percent, according to yesterday's Labor Department report.</br></br>On Wall Street, the bond market, which craves price stability and fears rising interest rates, rallied on the report, with traders reporting a flood of "buy" orders from mutual fund managers awash in cash. The price of a $1,000, 30-year Treasury bond rose $8.15, reflecting an underlying interest rate of 6.17 percent.