After incremental increases in April and May, wholesale prices – as measured by the producer price index – rose by 1.8 percent, or twice as high as expected. Just as seen in November 2007, when wholesale prices rose by 3.2 percent, rising energy costs made up most of this increase. Gasoline prices alone rose by 18.5 percent last month.

But, without the consideration of food and energy costs, wholesale prices would have increased by just 0.5 percent. Prices for cosmetic and toilet preparations, in addition to soaps and synthetic detergents, had risen incrementally after falling in May.

This month’s increase has already scared Wall Street a bit, as shown through yesterday’s declining stocks. But economists remain assured that June’s wholesale price increase is only a momentary spike.

Brian Bethune, IHS Global Insight economist, predicts that prices will level off in July, as he told the Associated Press. Besides, with the current economy, companies still cannot justify jacking up their own prices to match.

Wholesale prices also may have slowly climbed in 2009, but they still add to an overall decline of 4.6 percent over the past 12 months.

Economists made predictions ranging from zero change to a 2.3 percent gain, according to Bloomberg. And while they had initially feared any sign of inflation, actual prices suggest that they now have no need to worry.

“There’s no story on inflation here, and deflation doesn’t seem to be a concern,” said Anika Khan, Wachovia economist, to CNN.

Most of the major increases and decreases since last month occur in food and energy prices, according to the Bureau of Labor Statistics. Otherwise, other wholesale prices remain essentially the same.

Prices for apparel and other fabricated textiles, in addition to non-wood commercial furniture, turned up incrementally after falling down in April. On the other hand, prices for perfume and cologne decreased after observing slight increases.

In comparison to last year, wholesale prices for finished goods are down by 5 percent – though much of this decrease is due to cuts in food prices. However, excluding food and energy, prices have actually risen by 3 percent, according to the Bureau of Labor Statistics.

Such behavior is a stark contrast from the 9.8 percent year-over-year increase in July 2008, a 27-year high.

For some, this decrease could be interpreted as a preventive measure against inflation, as Bloomberg reported this morning. Wholesale prices last declined in December 2008, by 1.8 percent.

Measured by the producer price index, wholesale prices serve as one of three gauges of inflation calculated monthly by the Bureau of Labor Statistics.

Rapidly declining energy prices led the overall decrease, as the costs of both gasoline and home heating oil each declined by 13 percent.

On the other hand, the prices of finished goods sans food and energy had increased by 0.1 percent, following a 0.4 percent increase in February.

Prices of women, girls and infants’ apparel fell slightly in March, after a 1.5 percent increase the month before. Prices of toys and consumer plastic products fell less than they had in February, while prices of sporting and athletic goods rose by 0.6 percent after a 3.5 percent decline.

The Bureau of Labor Statistics reported the rise yesterday through its regular tracking of wholesale prices of crude, intermediate and finished goods, cumulatively referred to as the producer price index.

Finance and economics journalist James Picerno called the price increase paired with the 22 percent rise in new housing starts “more than just a dead cat bounce.”

“Is it safe to declare the deflation risk over? No, not yet, but it’s not too soon to start thinking about the light at the end of the tunnel, dim though it’s likely for the time being,” he wrote in his blog, The Capital Spectator.

Prices of finished consumer goods sans food and energy rose by 0.4 percent, following the 0.3 percent increase observed in January.

Within this category, prices of both household appliances and women’s, girls’ and infants’ apparel rose by 1.5 percent after smaller increases during the previous month. Meanwhile, prices of sporting goods and toys experienced the steepest declines, of 1.7 and 3.5 percent respectively.

On the Ground Below

The Bureau of Labor Statistics, National Retail Federation, and Census Bureau released reports indicating that wholesalers and retailers are still adjusting to the economic climate, as price indexes continued to fall:

• Retail container traffic fell in November for the 16th month in a row. With this finding in mind, the National Retail Federation maintains its hypothesis that 2008 will be the slowest year for traffic since 2004, with a year-to-year decline of 7.1 percent.

• U.S. wholesalers lowered their inventories by 1.1. percent in October, though sales also dropped by 4.1 percent from the previous month, according to a Census Bureau report released Wednesday.

• As reported today, wholesale prices of finished goods dropped by 2.2 percent in November, following monthly declines of 2.8 and 0.4 percents.

The Cloud of Consumer Pessimism

As these prices fell, a few research groups found record retail sale declines last month. The International Council of Shopping Centers even deemed Black Friday and the following weekend’s shopping days a “poor start to the holiday season sales,” as it observed a year-to-year decline of 2.7 percent.

The cause of these sales declines: a hibernating consumer, hiding from any temptations to spend money this holiday season:

• The ABC News Consumer Comfort Index measured record-low levels of confidence for the fifth week in a row, as reported on Tuesday. According to the poll, 92 percent of consumers surveyed said the nation’s economy is in bad shape, while 79 percent of them rated today’s buying climate negatively.

• Perhaps as a result, shopping ranked second only to dining out as one of the top activities consumers planned to decrease, according to a poll by the National Association of Television Program Executives and E-Poll Market Research. About 35 percent of consumers also said they planned to stay local more in their socializing, if not at home. They may also hesitate to buy any gifts full price this holiday season – though they were also willing to splurge on themselves, as Women’s Wear Daily reported.

Attempts to Find a Silver Lining

Meanwhile, researchers are taking such economic and behavioral conditions in mind, in trying to find positive news within it all.

• Some, like MasterCard’s SpendingPulse, traced the origins of rising consumer pessimism back to the ongoing depreciation of petroleum, as wholesale prices for it and petroleum products dropped by 11.2 percent last month.
  The research group reported yesterday a 3.8 percent decrease in total retail sales, excluding auto purchases – the biggest month-to-month decline it has ever measured. The caveat: without the rapid decline of gasoline purchases factored in, retail sales growth would have otherwise remained relatively flat.

• In its latest study, the Kauffman Foundation posed to question whether recessions were a good time to start a new business.
  The study, examining entrepreneurship up till 1975, did not reveal anything too conclusive, as the research group found a number of other factors that had to be considered. The research group also acknowledged that potential entrepreneurs would be unwilling to leave their jobs to found companies during recessionary periods.
  However, when the study excluded the Great Depression and World War II – the most unusual periods of time – the Kaufmann Foundation found that slightly more companies debuted during recession periods than expansion periods.

Overall, this week’s numbers showed that consumer pessimism remains persistent as retailers and wholesalers continued adjusting to the economic environment. Whether such feelings or downturn behavior will fade first, time has yet to tell. But either way, as the next few weeks pass by, and as the new year approaches, new perspectives could perhaps lead to new solutions – or, at the very least, a break in the cloud.

Nationwide, Thanksgiving food prices rose 6 percent from last year, according to the American Farm Bureau Federation. In addition, a meal for a family of ten this year will cost an average of $44.21, over $2 more than what it cost in 2007.

Consumers may wonder how, considering today’s lower gas prices, they are still ending up paying more for tomorrow’s meal – specifically, as much as $2.20 more for a 12-oz. package of brown-n-serve rolls and $3.12 more for three pounds of sweet potatoes.

Such increases, including the $1.46 more for a 16-lb. turkey, results from this year’s heavy fluctuation in both food and energy wholesale prices. According to the Bureau of Labor Statistics, food prices rose as high as 1.5 percent in June, when energy prices also rose 5.6 percent. Since then however, while oil prices have dropped drastically, food prices remained as high as they did during the summer.

“The pasta you bought in the store last weekend is based on wheat that was grown months ago – potentially as much as a year ago,” said Stewart Ramsey of IHS Global Insight to MSNBC. As for those turkeys, their prices reflect the high price of corn they were fed months ago.

As a result, consumers have been flocking toward smaller grocery stores and discounters like Save-A-Lot, to cut both time and money spent. Trader Joe’s, a chain of over 300 stores with an organic focus, also prides its ability to buy directly from suppliers, which they say results in lower prices for customers.

At the same time, grocers have also scaled back as much as they could. Even Wal-Mart, once known for their “supercenters,” focused its energies instead upon releasing smaller-scale “marketplaces.”

With the U.S. Department of Agriculture expecting food prices to continue increasing come 2009, many are expecting that the current food retail market will also carry over to next year.

“It’s safe to speculate that a lot of growth in the grocery business in the years ahead is going to be focused on these smaller stores,” said Bill Bishop, a food retail consultant at Willard Bishop Consulting, to the Associated Press.

While wholesale energy prices fell 12.8 percent, wholesale gasoline prices dropped 24.9 percent after just a 0.5 percent decline last month.

So far in November, falling oil barrel prices and consumption have made current gasoline prices the lowest since summer 2005, according to the U.S. Department of Energy. The average retail price also dropped yesterday to $2.132 a gallon – a 2008 all-time low after prices peaked to $4.165 in July.

Meanwhile, executives and economic experts are still wondering how current prices will affect holiday retail sales, if at all. Kathy Lien of Global Forex Trading called the decline a “silver lining” for this season.

“Although gas station receipts will take a hit, lower prices at the pump will free up money for Americans to spend on basic necessities and holiday purchases,” the director of currency research wrote yesterday.

Eduardo Castro-Wright, head of Wal-Mart’s U.S. operations, has already reported such behavior this month, as made evident by company sales. As gasoline prices fell last month, traffic at its rural and urban stores increased, he said at a Morgan Stanley conference. Wal-Mart’s company sales have also risen 7.4 percent to $94 billion over the last quarter.

The International Council of Shopping Centers reported that nearly one of every four shoppers feel encouraged by lower gasoline prices to spend more – “albeit by only modest amounts.” Michael Niemira, chief economist and director of research, remains skeptical.

“Unfortunately, rising unemployment is holding back spending much more than the help that is coming from lower gasoline expenditures,” he said to the Wall Street Journal .

The U.S. Department of Energy’s information administration projected last week that regular gasoline prices will average at $2.37 a gallon. The average price of an oil barrel can also fall by more than half of its July 2008 price, to about $63.50.

Prices fell by 0.4 percent in September, following a 0.9 percent decrease the previous month. They are still 8.7 percent higher than they were in September 2007, as the Bureau of Labor Statistics reported last week.

The two-month drop in wholesale prices – collectively referred to as the producer price index – follows a 1.2 percent month-to-month increase and a 9.8 percent rise from July 2007, that being the sharpest increase since a 10.4 percent jump in June 1981.

Energy prices continued to decline as well, by a total of 7.5 percent over the past two months. While this has helped ease economists worrying about inflation, they cannot claim overall financial stability with the current state of wholesale prices.

Without food and energy prices factored in, the producer price index of finished wholesale goods still rose by 0.4 percent in September – a “good news, bad news story” as stated by Peter Morici, University of Maryland international business professor and Seeking Alpha contributor.

“That indicates that we have yet to see moderation in what businesses charge at a wholesale level,” he said in a phone interview.

Some wholesale prices of finished goods – including that of women’s, girls’ and infants’ apparel; plus office and store machines and equipment – fell after rising in August. But the prices of finished consumer foods continued to increase by 0.2 percent, after rising 0.3 percent in August. Those declines also accompany a 15.4 percent rise in prices of intermediate goods as received by manufacturers, according to the report.

And while those producers may have noted a change in their prices, consumers did not see much change at all. In fact, the consumer price index, or the change in prices as seen by households, was “virtually unchanged in September,” after just a 0.1 percent decrease in August, the Bureau stated. This follows a 1.1 percent overall rise in June, which included a 3.8 percent increase in transportation prices and a 6.6 percent increase in energy prices.

Morici had predicted for September a 0.2 percent decline. Now he expects more of the same moderate pricing in the future – “more tepid increases, or maybe decreases in wholesale prices through the end of the year.”