May 14, 2004
By PAUL THARP 

Price tag shock is heading into stores by Memorial Day due to soaring wholesale prices, with dairy prices jumping to their highest levels in 58 years.

Retailers also are suffering a new shopping slump after their biggest boom in a year and could get hit harder when higher prices kick in, analysts say.

Labor Department data yesterday show factory and producer prices jumping more than twice the level that economists had expected - due primarily to soaring crude oil and a shortage of raw materials being devoured at China's booming factories.

Some companies want to pass added costs to consumers right away, such as paint giant Sherwin-Williams, which in the past year has spent about a quarter more for its petroleum used in paint-making.

Industry data are as grim as the government's, with the private Institute for Supply Management saying that prices paid for raw materials surged in April at their highest pace in 25 years.

The government said prices of steel-mill products, for example, are at their highest rate in 30 years, surging 6.3 percent in April alone, the biggest monthly jump since a 6.8 gain in July 1974.

The list of double-digit jumps in wholesale prices in the past year is long. Refrigerators are up 13.3 percent; animal feed, up 31.8 percent. Chicken is up 18.3 percent, cooking oil's up 28 percent and eggs are 23.3 percent higher.

Analysts blame soaring oil prices, soaring above the the $40-a-barrel level this week.

"These prices are economy wreckers," said Peter Beutel, energy analyst at Cameron Hanover. "The emergency is here and now."

Some economists fear a domino effect from the wholesale price squeeze.

Major airlines already are passing along a fuel surcharge on cargo rates, a boost of as much as one-third, and are planning similar hikes for passenger fares, say industry sources.

Producer prices in April rose 0.7 percent, higher than the 0.3 percent economists expected. Retail sales last month skidded 0.5 percent following an 8 percent gain the prior month. Consumers avoided purchases of cars and clothing - two of the largest spending categories - the Commerce Department said.

The agency, in an effort to put a calming effect on the way consumers' paychecks are being eaten up, said that if cars and clothing were carved out of its data, retail sales would have gained a healthy 9.4 percent in April.

Likewise, if food and energy wholesale prices, which account for two of the biggest spending items among consumers - were carved out, the wholesale inflation rate would have been a tame 0.2 percent.

Economists are bracing for possible surprises in today's report on how much consumer prices actually rose in April.

Two other reports today, on business inventories and industrial production, will help market watchers make a better guess on the Federal Reserve's timing to hike interest rates.

Mortgage rates jumped sharply. The 30-year fixed rate rose to 6.34 percent from 5.38 percent last week, which could hamper the housing boom. Lumber costs also are up 22.2 percent in the past year.

Rates for 15-year, fixed-rate mortgages rose to 5.72 percent from 5.47 percent last week, while the one-year adjustable rate rose to 3.90 percent this week, vs. 3.76 percent last week.

Meanwhile, the jobs recovery showed signs of slowing. Labor Department data said first-time jobless claims came in higher than expected, suggesting that the Fed may be less inclined to boost interest rates early.

First-time filings for state unemployment benefits rose by 13,000 to 331,000 last week. Economists had expected claims to rise to 321,000.

http://nypost.com/business/20852.htm