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U.S. wholesale prices dip
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May 12, 2000: 1:45 p.m. ET
Producer Price Index falls 0.3% in April, reflecting lower energy costs
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NEW YORK (CNNfn) - Wholesale prices declined in April due to a sharp drop in energy costs, but despite the data, which was in line with expectations, investors remained convinced that interest rates will rise next week.
"I don't think it changes anything for Federal Reserve policy. Various early warning signs of inflation are still telling us they have to raise interest rates by 50 basis points and they are likely to do so when they meet next week," Hugh Johnson, chief investment officer at First Albany Corp., told Reuters, referring to a half-point increase in rates.
The U.S Labor Department reported a 0.3 percent fall in its Producer Price Index in April, in line with the consensus estimate of analysts surveyed by Briefing.com. It was the first decline in wholesale prices in more than a year and the largest drop since February 1999. PPI rose 1.0 percent in March.
Core PPI data, which excludes the often-volatile food and energy sectors, rose 0.1 percent, also in line with estimates and matching the March data.
Analysts were encouraged by the data, but cautioned that the threat of inflation remains. "Is the pressure on inflation behind us? I think not. Inflationary pressures are not going to surge overnight, but they'll creep up," Diane Swonk of Banc One told CNNfn's Before Hours.
Data seen to have little impact on Fed decision
Stocks rose Friday morning after release of the report. The Dow Jones industrial average gained 103 points, or 1 percent, to 10,652 while the Nasdaq composite index jumped about 115 points, or 3.3 percent, to 3,614.
Investors said the report eased fears of a surge in inflation, although interest rates will still likely rise when the U.S. Federal Reserve meets next Tuesday.
 "I don't think it changes any [Fed] decision making as we go into Tuesday's meeting. We are still looking at one-half a percentage point hike. This is the first of the important numbers that determines what the Fed will do in the June period," Barry Hyman, market strategist for Ehrenkrantz, King Nussbaum Inc. told Reuters.
The PPI is a key indicator of inflation. A further hint will come when Consumer Price Index numbers are released Tuesday morning. Later that day, Fed chairman, Alan Greenspan, is expected to unveil a rise in interest rates aimed at warding off inflation. Forecasts are split between whether the central bank will raise rates a quarter percentage point or a half point. The Fed has raised rates five times since June, by a quarter point each time, in a bid to slow the economy and restrain inflation.
A boom in consumer spending has fueled a record nine-plus years of growth in the economy. Consumer purchasing accounts for about two-thirds of the U.S. economy. A sign that consumer spending may be slowing emerged Thursday, however, when the government reported that retail sales fell for the first time since August 1998. It was the first significant evidence of a possible slowing in the red-hot economy, analysts said.
Egg prices boil up
April's PPI number came after 1.0 percent jumps in February and March, the highest rises for almost 10 years. Energy prices were at the root of the big moves, with the crude oil price hitting a nine-year high in March. During April, however, energy prices in the United States fell 4.1 percent, the largest monthly fall since 1991, and gasoline prices fell almost 12 percent. Oil producing countries in the OPEC cartel agreed to boost output in late March, reining in the runaway crude price.
Food prices moved in the opposite direction from energy prices during the month, rising 1.0 percent higher by a massive surge in the cost of eggs. Egg prices rose almost 42 percent in April. The overall rise in food prices was the largest since a 1.5 percent gain in January 1999. Beef, pork, fish and vegetables also cost more during April. The report did not explain why egg and food prices rose during the month.
The government also reported Friday that business inventories rose in March for the 15th straight month. However, in a sign that businesses could be pulling in their horns ahead of an expected slowdown in the economy's rate of growth later this year, the Commerce Department said inventories increased only 0.3 percent in the month, after a 0.5 percent rise in February. Economists polled by Reuters had forecast an increase of 0.4 percent.
Separately, Reuters reported Friday that the University of Michigan's consumer sentiment index for early May rose to 110.9 from 109.2 in April. According to analysts polled by Briefing.com, the consensus forecast was 108.5. The early May current conditions component rose to 120.6 from an April reading of 117.8. 
--from staff and wire reports
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