Originally created 07/11/98

Drug costs surge again

WASHINGTON -- Prescription drug costs surged at the wholesale level for a second straight month in June as tranquilizers and other generic drugs continued their rapid rise after five years of moderation.

Most other inflation at the wholesale level was a no-show as falling energy prices offset increases elsewhere.

The Labor Department reported Friday that its Producer Price Index, which measures price pressures before they reach the consumer, declined 0.1 percent.

It was the fourth decline this year and left wholesale prices declining through June at an annual rate of 1.5 percent. Consumer prices have also been well-behaved, rising at an annual rate so far of just 1.5 percent, even better than last year's modest 1.7 percent increase.

"Inflation is low, slow and anemic and is likely to stay that way," said Jerry Jasinowski, president of the National Association of Manufacturers.

While some economists worry that the best news on inflation is over, others insist that the Asian economic crisis will mean downward pressure on prices for some time, allowing the Federal Reserve to refrain from boosting interest rates.

The view of Jasinowski and others is that the Asian economic crisis will do the Fed's work of slowing the economy to offset pressures that could arise with unemployment at the lowest levels in nearly three decades.

U.S. manufacturers are seeing export demand fall with many Asian countries in recession. Producers are also facing increased competition from Asian imports which are now cheaper for American consumers because of the currency devaluations.

The biggest wholesale price increase in June occurred in prescription drugs, up 3.2 percent, the second highest monthly gain on record, following a record 10.7 percent May increase.

As in May, the increase was driven by a sharp rise in tranquilizers, up 20.9 percent following a 585.2 percent surge in May. Mylan Laboratories Inc. of Pittsburgh, maker of the generic tranquilizer lorazepam, blamed higher raw material costs, regulatory approval delays and lawsuits from brand-name drug manufacturers for price increases it has put through this year.

Higher prices for various generic drugs have prompted calls in Congress for antitrust investigations. But industry analysts noted that this year's gains are coming after three years of big declines in many generic drug prices.

"Many of these generic drug companies are being forced to raise prices. The economic reality is they can't survive if they don't raise prices," said Hemant K. Shah, a drug industry analyst in Warren, N.J.

Moderation in drug prices, which began in 1993 after President Clinton accused the industry of price gouging, has been a key factor helping to restrain overall medical costs. They rose just 2.8 percent last year, the smallest increase in more than three decades.

June's 1.7 percent drop in energy prices, the eighth decline in the past nine months, reflected falling costs for residential electricity, natural gas and home-heating oil. Gasoline prices, which had risen sharply in May, were unchanged.

Food costs edged up a slight 0.1 percent in June, reflecting a big jump in pork prices. The price of beef, fish, vegetables and fruit all dropped.

Excluding the volatile energy and food categories, the so-called core rate of inflation at the wholesale level was 0.2 percent, matching the increases in April and May.

Without the big jump in drug prices, the core inflation would have been just 0.1 percent.

Prices for passenger cars were up 0.3 percent in June following a 1.7 percent decline in May. Prices of tobacco, which had been rising sharply in recent months as tobacco companies had been raising prices to recoup costs for settling multimillion-dollar liability lawsuits, edged up just 0.1 percent in June.


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