Falling Energy Costs Hold Down Wholesale Inflation Latest Evidence Of Economic Stability May Bode Even Better News Ahead, Analysts Say

Plunging gasoline and energy costs helped hold wholesale prices steady in July in the latest evidence inflation remains under control. Analysts said even better times may be ahead.

The Labor Department said Thursday that its Producer Price Index was unchanged last month after falling 0.1 percent in June for the first decline in eight months.

Better yet, economists said, a drop in raw material prices of 0.8 percent in July suggests inflation pressures could ease even further.

The stock market was mixed. The Dow Jones industrial average fell 27.83 points.

Bond prices initially slipped amid new signs of economic strength, but rallied to keep the yield on the key 30-year Treasury bond at 6.92 percent. Traders worry that a recovering economy will postpone any interest rate reductions by the Federal Reserve.

The Labor Department said the number of American workers filing new claims for jobless benefits rose last week for the first time in three weeks. But the increase of 14,000 claims, to a seasonally adjusted 335,000, was smaller than expected and suggested that softening in the labor market might be temporary.

The Clinton administration welcomed the inflation report and boasted that it is accompanied by solid economic growth.

“The evidence suggests that inflation will remain moderate for the foreseeable future,” Treasury Secretary Robert Rubin said. “Our recovery, I believe, has legs and will run for some time.”

The Labor Department said energy prices fell for the third straight month despite greater use of air conditioners. The 2.5 percent decline was the biggest drop in nearly two years. Gasoline prices plummeted 10.1 percent, the steepest drop in over four years.

The decline in energy costs offset a 1.2 percent rise in wholesale food prices, the first increase in five months.

The Producer Price Index, measuring inflation pressures before they reach the consumer, is rising at a well-behaved annual rate of 1.8 percent for the first seven months of 1995.

On Friday, the Labor Department announces its Consumer Price Index for July.

“All’s quiet on the inflation front,” said Ron Schreibman of the National Association of Wholesaler-Distributors.

The new figures, matching analysts’ expectations, included a modest 0.2 percent increase in the so-called core rate of inflation, which factors out volatile energy and food costs.

“The economy clearly did slow, especially in the second quarter. Inventory trimming has reduced demand for goods,” said Eugene Sherman of M.A. Schapiro & Co. Inc. “Looking ahead, there is no reason to see inflation acceleration in the next several months.”

The moderation in wholesale price pressures underscored the economic slowdown that the Federal Reserve helped engineer by raising interest rates seven times over a one-year stretch. The Fed lowered a key interest rate July 6, the first cut in nearly three years, declaring it had won the battle against inflation.

Federal Reserve policy-makers next meet Aug. 22 to consider monetary policy. Many analysts expect the central bank to remain on the sidelines, awaiting further developments.