Washington, Jan. 15 (Bloomberg) -- Prices paid to U.S. factories, farmers and other producers were unchanged in December, restrained by cheaper cars and computers, as slow economic growth limited pricing power. The index of wholesale prices unexpectedly held steady at 139.5 following a 0.4 percent drop in November, the Labor Department said. Excluding food and energy, prices in the so- called core index dropped 0.3 percent after falling 0.3 percent the previous month. ``With the economy slow, there is just no prospect of sustained price gains going forward,'' said Stan Shipley, a Merrill Lynch & Co. economist in New York, before the report. General Motors Corp., Ford Motor Co. and DaimlerChrysler AG's Chrysler unit sweetened incentives to lure buyers as consumer confidence wanes and economic growth slows. The price of the vehicles automakers sold to dealers declined 2 percent for the month, the report said. Inflation will probably stay tame as companies use discounts to revive demand.
Economists had expected a 0.3 percent rise in producer prices, based on the median estimate of 62 forecasts in a Bloomberg News poll, and a 0.1 percent increase in the core rate. Prices rose for energy, gasoline and food, and declined for autos and capital equipment For all of last year, wholesale prices rose 1.2 percent, compared with a 1.6 percent decline in 2001. Core prices declined 0.4 percent in 2002, the biggest drop since the government began keeping the records in 1973. That compared with a 0.9 percent rise the previous 12 months.
Auto Prices
December's 2 percent decline in new-automobile wholesale prices followed a 3.6 percent decline in November. Rebates and other incentives averaged a record $3,142 a vehicle in December, according to industry figures. Per-vehicle incentives cost $2,964 at Chrysler, $3,521 at Ford, and $3,814 General Motors. In 2002, passenger-car prices fell 4.7 percent, the biggest drop since the 12 months ended in September 1960. So far there are few signs that incentives will be reduced. ``Certainly we anticipate that the competitive market will be intense as we go into 2003,'' said James Padilla, executive vice president at Ford's North American division, in an interview with Bloomberg Television last week. ``We will be sure that our products are competitive when we go out to the marketplace, and incentives will be a big part of that.'' Chrysler last week increased cash rebates on large sedans and the Durango sport-utility vehicle after December sales growth lagged rivals. The company added five-year, no-interest loans on the Dodge Intrepid, Chrysler Concorde and 300M sedans. It also offered the option of $3,000 rebates on those sedans as well as on the Durango.
Energy Prices Rise
Energy prices rose 0.8 percent last month after falling 1.8 percent in November. Gasoline prices increased 1.6 percent after falling 9 percent the previous month. The average price of crude for February delivery on the New York Mercantile Exchange averaged $29.30 a barrel last month, up 12 percent from November. The average price was $31.90 a barrel in the first 14 days of this month. ``Most of the forecasts I see don't expect any significant acceleration in inflation,'' said Alfred Broaddus, president of the Fed Bank of Richmond, in an interview this week. ``There is some concern about the increase in oil prices but I don't see people translating that into general expectations of higher inflation.'' Food prices rose 0.4 percent after gaining 0.3 percent in November. Last month's gain reflected higher costs for beef and veal, chicken and dairy products. Prices for capital equipment like machinery, tools and computers fell 0.4 percent last month after declining 0.2 percent in November. Computer prices fell 2 percent last month, matching the previous decline and dropped 20.5 percent for the year.
Chief Executives
While chief executive officers grew more optimistic about the economy last quarter, they expected little opportunity to raise prices, a private survey showed. Almost a third of the chief executives surveyed by the Conference Board, a New York research group, said they don't plan to alter selling prices this year, with the average increase at 1.3 percent. About 20 percent of CEOs expect prices to decline. Slowing economic growth is one reason why companies are being forced to drop prices. The economy probably expanded at a 1.4 percent annual pace in the last three months of the year, down from 4 percent in the previous quarter, according to the consensus estimate of economists surveyed this month by Blue Chip Economic Indicators. Growth is projected to improve to 2.8 percent this quarter, according the latest Blue Chip Economic Indicators Survey. That remains below what economists consider the economy's potential of 3 percent to 3.5 percent and compares with an average of 4 percent growth from 1996 to 2000, the five years before the start the recession. Intermediate goods prices fell 0.1 percent for a second straight month. Excluding food and energy, intermediate prices declined 0.1 percent after rising 0.1 percent. Prices for crude goods, which are used at the earliest stage of production, rose 1.9 percent after rising 5.1 percent. Core crude goods prices, excluding food and energy, increased 0.2 percent after rising 0.4 percent the previous month//www.quote.bloomberg.com