Wholesale Prices Continue Upward Climb

WASHINGTON--Wholesale prices surged I percent in February, matching the January increase and marking the worst back-to-back news on inflation in nearly eight years, the government said yesterday.

The identical increases in the Labor Department's Producer Price Index mean that prices one stop short of the retail level are 12.6 percent higher, on an annual rate, than at the start of 1989.

Not since March and April of 1981 have prices risen so sharply for two months in a row. Wholesale prices rose 4.0 percent last year.

Stock and bond prices tumbled after yesterday's report triggered renewed fears that the Federal Reserve Board will push interest rates higher in an attempt to tame inflation.

That would increase the government's cost of financing the $2.7 trillion national debt, which would be bad news for President Bush, who is trying to trim the budget deficit without raising taxes.

Bush, speaking to reporters as he returned to Washington from Colorado, said his administration would "always be vigilant against inflation [and] never relax our concern."

He said the best way to beat inflation would be an agreement with Congress to reduce the deficit and called yesterday's report "another clarion call to do something." Negotiators from Capitol Hill and the White House will exchange proposals next week on bringing down the deficit.

Bush's remarks amount to a shift in his rhetoric. Previously, the president has said he is not overly concerned with inflation and interpreted economic reports less negatively than the Federal Reserve.

After the January inflation report, which included a 0.6 percent rise in the Consumer Price Index, the largest in two years, many economists dismissed it as at least a partial aberration and predicted only a moderate 0.4 climb in February.

With the latest report, "it's difficult to put a happy face on it," said Undersecretary of Commerce Robert Ortner. "There's no other interpretation that can be put on it other than it shows a pickup in inflation."

Prices in both January and February were pushed up by soaring energy and food prices, but the cost of other items, which are generally more stable, increased at a worrisome rate in February as well.

Wholesale food prices rose 1.2 percent last month, the steepest increase in 13 months. They had risen 1.1 percent in January.

Meat and most other food items rose, while eggs dropped 15 percent after rising 20.1 percent in January. Food prices were led by a 35.3 percent increase in vegetables, including a huge 158 percent rise in tomato prices.

Energy prices jumped 2.4 percent overall in February, following a 4.9 percent increase a month earlier. The latest surge was led by a 4.1 percent rise in gasoline prices, the same as January's increase, and a 1.9 percent advance in the cost of natural gas. Fuel oil prices fell 3.1 percent, recovering somewhat from an 11.6 percent surge a month before.

Wholesale prices, excluding the volatile food and energy catagories, rose a brisk 0.6 percent in February, up from a 0.4 percent rise a month earlier. Toilet paper, prescription medicines, books and flatware prices all increased substantially.

The overall February increase left the Producer Price Index for finished goods at 111.7, meaning that a hypothetical selection of goods costing $100 in 1982 would have cost $111.70 last month. That was up 70 cents from January and $5.60, or 5.3 percent, from February 1988.

Despite the severe price hikes in February at the finished goods level, increases earlier in the production process were more moderate. Prices at the intermediate level rose 0.5 percent while the cost of crude goods dipped 0.1 percent after two months of increases above 3 percent. A loaf of bread is an example of an item at the finished goods level, flour at the intermediate level and wheat at the crude level.