Wholesale Prices Soar; Dow Plunges 48 Points : Second Consecutive Rise of 1% Brings Fears of High Interest Rates and Imminent Recession

WASHINGTON —  In a surge that analysts say is certain to spark a further speedup in inflation, wholesale prices soared 1% in February--the second such rise in two months--the Labor Department reported Friday.

The increase, which was about twice as large as had been expected, sent financial markets reeling from inflation fears. The Dow Jones industrial average plunged 48.57 points after the statistics were made public. Bond prices also plummeted.

The February increase raises new alarms about the acceleration of inflation and threatens to intensify the current dispute between the Bush Administration and the Federal Reserve Board about how far the central bank should go in raising interest rates.

Bush Hears ‘Clarion Call’

President Bush, en route back to Washington from a trip to Texas and Colorado, told reporters aboard Air Force One that the figures should serve as a “clarion call” to Congress to cut government spending and ease pressure on prices.

But private analysts expressed apprehension that the data might prompt the Federal Reserve Board to keep interest rates high to help blunt inflation, increasing the risk that the economy will fall into a recession sooner--and more sharply--than had been expected previously.

Lynn Reaser, an economist at First Interstate Bancorp in Los Angeles, said that, with Friday’s report, it now seems more likely that the economy will start to weaken “before the middle of this year,” rather than in early 1990, as some analysts have predicted.

“This morning’s report could make a recession deeper,” Reaser said in the wake of the Labor Department’s announcement. “We tend to be (heading toward) the worst of all possible worlds--higher inflation and lower economic growth.”

If the January and February increases continued for the full year, it would result in a wholesale inflation rate of 12.6%. For the 12 months that ended in February, the rate was 5.3%.

The second straight 1% monthly price rise was a jolt to economic analysts. Joel Popkin, a Washington consultant, said there no longer is any doubt that the underlying inflation rate has climbed past the 5% annual level and is on its way to the 6% range.

Donald Ratajczak, director of the Georgia State University Forecasting Service, which tracks inflation closely, called the February figures “big-time numbers.” Ratajczak earlier had been less fearful that inflation was dangerously on the rise.

The price surge in February was spread virtually throughout the economy. Wholesale food prices leaped 1.2% over the month, even faster than the 1.1% increase recorded during January. Prices of most other goods jumped 0.8%, compared to 0.9% the month before.

Prices of goods in the manufacturing stages of production rose 0.5% in February, compared to 0.9% in January, but the index for prices of crude materials--considered a harbinger of inflation trends several months from now--remained stable.

Inflation at the wholesale level has been accelerating slowly--but steadily--for more than a year. Prices of finished goods, not including energy and food--by far the most stable measure in the index--rose 2% in 1987 and 4% in 1988. February’s rise was at a 7.5% annual rate.

Prices of fresh fruits and vegetables rose 35.3%, mainly because of a tight market, while tomato prices surged 158%--an aberration that puzzled most analysts but could be related to current buying by producers of ketchup and other tomato-based products.

Energy prices also continued to rise sharply, jumping 2.4% in February--only about half of January’s 4.9% rise but still steep by historical standards. For the second consecutive month, gasoline prices rose about 4%.

Gains ‘Frittered Away’

Some analysts believe that inflation now has accelerated so much that merely a mild recession will not be sufficient to dampen price pressures. “I doubt that the typical garden-variety recession would make much of a dent,” Popkin said. “We’ve frittered away all our gains.”

Moreover, the February figures do not fully reflect recent rises in energy prices. Ratajczak pointed out that the petroleum index used in Friday’s report is based on prices of $17.50 for a barrel of oil; those prices already have risen to $19.50 a barrel.

Ratajczak speculated also that some producers may be raising prices in anticipation of a broader inflation surge. “We’re starting to see sympathetic price increases,” he said. “People start to see that other prices go up, so they raise their own prices as well.”

Friday’s report left the overall producer price index at 111.7% of its 1982 average--meaning that it took $11.17 to buy the same goods at wholesale last month that sold for $10 seven years ago.