US economy sees higher interest rates, inflation

Interest rates and inflation are on the rise. The nation's big banks raised their prime lending rate by a quarter percentage point on Friday to 8 percent. That put the prime at the highest level in 10 months.

This was the second time in two weeks that this key interest rate has increased. Banks last raised their prime rates on May 1 to 8 percent from 7 percent. On March 31, major banks raised the rate to 7 percent from 7 percent, where it had held since late August 1986.

The increases reflect the broader pressure pushing up interest rates nationwide. Economists have linked the upward movement to efforts by the Federal Reserve Board to tighten credit conditions, largely to stem the dollar's declining value and reduce the prospects of inflation.

The prime is a benchmark used to set interest on a range of corporate and consumer credit. In recent years, the rate has taken on greater significance because of its direct impact on variable rate credit cards, home equity loans, and other consumer debt.

Today's increases pushed the base lending rate to its highest level since July 1986, when the rate was changed from 8 percent to 8 percent. The prime rate peaked at 20.5 percent in 1981.

In other economic news, a steep increase in prices for meats pushed up wholesale prices 0.7 percent in April, an annual rate of 8.9 percent, the Department of Labor reported on Friday.

Food prices, which had risen 0.5 percent in March after five months of decline, shot up 1.5 percent in April, largely because of the higher meat prices. Pork prices posted the sharpest increase, up 13 percent from March.

Car prices rose 2.4 percent after declining since December and energy prices rose 2.1 percent. The April increase left the producer price index at 295.0. An array of goods costing $10 in 1967 would have cost $29.50 last month.

And industrial production fell 0.4 percent in April, the sharpest drop in 13 months.