Producer prices for finished goods rose only 0.1 percent, seasonally adjusted, in February as falling oil prices offset higher food and new car costs, the Labor Department reported yesterday.
With the small increase, which followed a record 1 percent decline in January, finished goods prices were only 2.1 percent higher than they were a year ago. That is the smallest 12-month rise in producer prices--a harbinger of prices consumers will pay some months down the road--since the 12 months ended January 1968, according to Commerce Department spokesman Adren Cooper.
Many economic forecasters now expect that both producer prices and consumer prices will rise between 2 percent and 3 percent this year. "We'll see the best peformance in the last 20 years," according to economist Allen Sinai of Data Resources Inc.
Some of the good news on the inflation front was tempered by a separate report from the Commerce Department that personal income also went up a minuscule 0.1 percent last month, and that personal consumption spending hardly went up at all. In part, according to economists, it is the continued weakness in spending that is holding prices down.
The figures provided additional evidence that the economic recovery-which got off to a fast start last December--may have taken a breather in February. Some analysts said that further increases in consumer spending will have to occur--and forecasters predict they will--if recent production gains are to be extended. So far, most of the output increases have been ordered to halt a sharp drop in business inventories. Once production has been brought in line with sales again, that source of demand will be gone and it will take higher sales to generate higher production and employment.
"We won't see much of an increase in consumer spending until after the next tax cut," which is scheduled for July 1, Sinai said.
Total wages and salaries fell last month at a seasonally adjusted annual rate of $1.7 billion to a level of $2.643 trillion, following a large $15.7 billion increase in January. The February decline reflected lower employment and weekly hours, the Commerce Department said.
The 0.1 percent increase in personal income followed a 0.2 percent rise in January--revised upward from an original report of no change--and a 0.3 percent rise in December. The overall January figure was heavily influenced by a decline in transfer payments and farm income related to commodity price support payments by the federal government late last year that were not repeated in January.
President Reagan called the 0.1 percent rise in producer prices "more excellent news on the economy. It raises the purchasing power of every American. In coming months, of course, the inflation figures may bounce around a little, but it's clear we're finally breaking the back of inflation in the United States," he said.
Analysts noted that the April price report, due in May, is likely to reflect a big jump in gasoline prices--which have been a moderating influence on inflation in recent months--as the five-cent-a-gallon tax increase enacted last year goes into effect. In February, energy prices declined 2.9 percent despite a 3.2 percent rise in natural gas prices.
Food prices, which had fallen 0.2 percent in January, rose 0.6 percent in February. Analysts said that while further food price increases are in store, they will not be big enough to offset downward price pressures in other sectors of the economy, keeping the overall increase in wholesale and retail prices at a moderate level.
Richard S. Peterson, chief economist at Continental Illinois National Bank, said that continuing high unemployment will exert a downward impact on wage increases this year, which will hold down production costs. In addition, as production increases, productivity gains normally exert further downward pressure on costs and prices.