Newspaper article THE JOURNAL RECORD

Energy Costs Lift Wholesale Prices; Retail Sales Drop

Newspaper article THE JOURNAL RECORD

Energy Costs Lift Wholesale Prices; Retail Sales Drop

Article excerpt

WASHINGTON (AP) _ Wholesale prices, driven higher by energy costs, jumped in April by the largest amount in five months. Financial markets took the bad inflation news in stride as a second report showed the economy continuing to slow.

The Commerce Department reported retail sales fell 0.4 percent, the third decline in three months. Auto sales led the plunge, suffering the largest drop-off in demand in more than two years.

While a 0.5 percent spurt in wholesale prices _ biggest since November _ would normally trigger inflation worries, most economists insisted the figure was an aberration and that the widespread economic slowdown would dampen any price pressures.

"We are achieving a soft landing," said Cynthia Latta, senior economist at DRI-McGraw Hill Inc. in Lexington, Mass. "We are not looking at a sick economy, just a slowing economy."

Analysts predicted the Federal Reserve, which doubled a key short-term interest rate last year in an effort to slow the economy to a more sustainable pace, will keep interest rates unchanged when it next meets on May 23.

But while spreading signs of economic weakness had prompted some talk that the Fed might even cut rates, analysts said increases in the PPI and the Consumer Price Index, which comes out today, would be too high for a few months to allow the Fed to cut rates.

"We have an economy that is slowing markedly, but we are still feeling the delayed price effects of the earlier rapid growth," said Robert Dederick, an economist at Northern Trust Co. in Chicago.

Financial markets were impressed by Thursday's economic reports. The Treasury's benchmark 30-year bond traded in a tight range just below 7 percent, still its lowest level in a year, as bond markets breathed more easily about the future course of the economy.

Extension of the bond rally helped to push mortgage rates down. The average 30-year, fixed-rate mortgage fell to 7.87 percent this week, the first drop below 8 percent in more than a year, according to a survey by the Federal Home Loan Mortgage Corp.

The dollar staged a strong rally on news that the House Budget Committee had approved a seven-year plan to balance the budget. …

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