Wholesale Prices Dropped 0.3% During January
WASHINGTON -- Inflation news couldn't be much more soothing.</br></br>Wholesale prices unexpectedly fell 0.3% in January, after a 0.6% jump in December, the Labor Department said. Stripping out the volatile food and energy sectors, the producer price index was flat in January after inching up 0.1% the month before. "Extremely well-behaved," said economist Marilyn Schaja of Donaldson, Lufkin & Jenrette, New York.</br></br>The scary monster of recent inflation reports -- energy prices -- has been tamed; those prices slipped 0.2% after three consecutive months of sharp acceleration. Given recent declines in crude oil and natural-gas prices, energy prices should come down further in coming months, analysts said. The food index dropped 1.0%, having risen sharply several months earlier when poor weather threatened many crops.</br></br>A few scattered red flags popped up, however. Prices of crude goods such as aluminum and copper shot up 5.2%, and even without food and energy jumped 2.0%. If those goods cost more money, often the products they're used to make will eventually cost more, too. "Recall that in 1994, inflation showed up in the pipeline well ahead of the increases that eventually appeared" in finished goods, warned economist Christopher Low of HSBC Markets Inc., New York. "Don't get complacent."</br></br>But Ms. Schaja of DLJ said analysis indicates a weak relationship between crude-goods prices and finished-goods prices, so very little of that increase should filter through. Also, industrial-material prices have already started coming back down this month, so the January increase likely will be reversed in coming months. Finally, Ms. Schaja noted that year-over-year core crude prices fell 3.7%. Meanwhile, prices of intermediate goods, or semifinished products like yarn and lumber, rose only 0.2%; the core index for intermediate goods was up just 0.1%.