001045 Wholesale Prices Shoot Up 0.9 Pct.

Washington - Surging oil prices helped give wholesale inflation its biggest jolt in seven months in September even as Americans spent freely, snapping up cars and furniture.

While the reports showed inflation pressures rising and consumers, the engine of the economy's brisk growth, displaying no signs of buying fatigue, economists remained optimistic that the Federal Reserve will leave interest rates unchanged for the rest of the year.

Recent stock market volatility and rising energy prices could make Americans spend more cautiously in coming months, a harbinger of slower economic growth, economists said. That would be welcomed by the Fed, which has raised interest rates six times in the last 16 months to prevent the economy from overheating, they added.

But if higher energy prices are sustained and spill over into other product prices to make them more expensive, they also can spark inflation. Fed policy- makers indicated they would monitor that closely as they consider the course of future interest-rate policy.

Tensions in the Middle East complicate the inflation picture, economists said. An outburst of violence in the region sent oil prices soaring Thursday to $37 a barrel, near a 10-year high, before falling back a bit. Continued upheaval could aggravate oil prices and inflation, analysts said.

“No one can predict where this is headed. It's an extremely volatile situation,” said Stuart Hoffman, chief economist for PNC Financial Services. “If things do calm down, oil prices should back down. But I've been saying that higher energy prices probably pose the biggest upside risk to inflation in the near term.”

On Wall Street, stocks moved higher despite a re-emergence of inflationary concerns, as bargain hunters scoured the markets following Thursday's massive selloff of blue-chip stocks.

The Dow Jones industrial average closed up 157.60 points at 10,192.18, a bold contrast to its 379-point plunge the previous day. The Nasdaq gained 242.09 points to finish at 3,316.77, one of its best one-day performances ever, coming a day after the Nasdaq closed at its lowest point of the year.

Big jumps in the costs of gasoline and heating oil helped catapult the Producer Price Index to a seasonally adjusted 0.9% last month, the Labor Department said. It was the biggest gain since February for the PPI, which measures inflation pressures before they reach store shelves. Wholesales prices fell in August.

The “core” rate of wholesale inflation, which excludes energy and food prices, rose 0.3% in September after a tiny 0.1% increase the month before. The acceleration largely reflected the biggest increase in car prices in five years and the largest jump in truck prices in 11 years.

Paul Taylor, chief economist for the National Automobile Dealers Association, said that's largely a statistical quirk reflecting the difficulty of adjusting for the introduction of some higher-priced 2001 models.

Other economists agreed and said discounting and other incentives offered by dealers and manufacturers explained a big increase in new car sales last month.

In another report, the Commerce Department said retail sales rose 0.9% in September, with car sales rising a brisk 1.4%, the best showing since February. Home furnishing sales grew by 0.8%.

With plentiful jobs and rising incomes, consumers were in the mood to buy last month, economists said. Sales at gasoline stations grew 2.1%, reflecting higher prices at the pump.

“So far, consumers have shrugged off higher energy prices, higher interest rates and more recently a weaker equity market and continue to spend strongly,” said Mark Zandi, chief economist for Economy.com, an economic consulting firm.

Wholesale prices have been rising this year at an annual rate of 4.1%, compared with a 3% gain for all of 1999. The pickup in this year's wholesale prices comes from rising energy costs.

In September, energy prices soared 3.7%, the largest gain in three months, after falling 0.2% in August.

Gasoline prices rose 9.3%, the largest increase since June, and heating-oil costs went up 13.4%, the biggest rise since February.

Crude-oil prices have risen sharply this year as the Organization of the Petroleum Exporting Countries limited production and U.S. supplies shrank. Prices hit a 10-year high of $37.80 a barrel last month. Costlier crude oil has contributed to higher gasoline and heating-oil prices.

Food prices, meanwhile, rose 0.4% in September, the first increase since April. Rising prices for fruits, vegetables and chickens swamped falling prices for dairy products, beef and pork.

Economists blamed the increase on food, including chicken prices, which rose 6.5%, the largest increase since early 1990, on the impact of a drought in the southeast.

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