Inflation Report Unsettles Market

Surging food and motor vehicle costs in November sparked the steepest jump in wholesale prices in 11 months and sent financial markets skidding amid concerns the Federal Reserve may not cut interest rates next week.

The Labor Department reported Tuesday that its Producer Price Index for finished goods jumped 0.5 percent, the biggest increase since a similar advance last January.

It was the third gain in five months and followed a 0.1 percent dip in October. The PPI measures cost pressures before they reach the consumer level.

Both stock and bond prices tumbled following the news.

But in a separate report, the Commerce Department said the U.S. trade deficit, after ballooning to the second largest ever during the April-June quarter, shrank by 8.7 percent from July through August to $39.48 billion. Exports improved, while Americans curbed their appetite for imported goods.

Despite the market reaction, many analysts said the PPI report was exaggerated by problems in adjusting vehicle prices for seasonal variations. The problems, they said, resulted from the introduction of many 1996 model cars and light trucks in November, rather than in October as usual.