Look closer at the rosy inflation picture the June producer price index paints and you'll see a few warts, one economist said yesterday.

While yesterday's index may conjure up visions of still lower interest rates to come in some corporate treasurers' heads, John Lonski, a senior economist at Moody's Investors Service, said the number offers no strong reason to delay issuance.

The June producer price index fell 0.3% and the core rate, excluding food and energy prices, was down 0.1 %.

But Lonski noted that the core rate was heavily skewed by a 5.9% drop in tobacco prices and, to a lesser degree, by a drop in alcohol prices. The tobacco price drop resulted from a manufacturers' price war, he said.

Meanwhile, other components of that core rate posted gains, he said. Passenger car prices rose 0.6%, while home furnishings and appliances each rose 0.3%. Capital equipment rose 0.2%, he said.

Consequently, while the index doesn't indicate that inflation will be troublesome in the near term, it's not a promise of lower borrowing costs ahead, Lonski said.

"What this says is that, number one, inflation represents only a slight threat to the credit markets near term ... secondly, it provides a misleading guide toward what is actually happening to the core rate of inflation, [which is] not dropping by 0.1%," he said.

Of yesterday's new corporate issues, a $300 million, 20-year offering by Nova Scotia was the largest to arrive by late in the day.

Jim Ho, a senior vice president at Boston-based John Hancock Mutual Funds, said that while he didn't buy any of the province's debentures offering, "I think it was fairly priced."

Ho said he passed on the bonds because he already holds some of Nova Scotia's 30-year paper.

In the private placement market, a source yesterday said Adelphia Communications Corp. offered $1 10 million of senior notes due 2000 through Rule 144A.

In secondary trading, spreads on high-grade issues held steady overall, though some of the newer 30-year industrial issues widened by about three basis points. High-yield bonds moved up 1/4 point across the board.

New Issues

Nova Scotia's $300 million issue of 7.25% noncallable debentures due 2013 was priced at 98.96 to yield 7.35%, or 72 basis points over comparable Treasuries. Moody's Investors Service rates the offering A2, while Standard & Poor's Corp. rates it A-minus. Merrill Lynch & Co. was the lead manager for the offering.

Tennessee valley Authority issued $150 million of 3.995% bonds due 1995 at par. The noncallable bonds were priced flat to comparable U.S. Treasuries. A group led by First Boston Corp. won competitive bidding to underwrite the offering. Branch Banking and Trust Co. issued $100 million of 4.75% bank notes due 1996. The noncallable notes were priced at 99.842 to yield 4.813%, or 50 basis points over comparable Treasuries. Moody's rates the offering A2, while Standard & Poor's rates it A. Merrill Lynch was the lead manager.

International Lease Finance Corp. issued $100 million of 4.75% notes due 1996. The noncallable notes were priced at 99.65% to yield 4.877%, or 55 basis points over comparable Treasuries. Moody's rates the offering A2, while Standard & Poor's rates it A-plus. Salomon Brothers managed the offering.

Rating News

Moody's Investors Service has raised Bank South Corp.'s subordinated debt to Ba3 from B2. The rating agency also assigned a Baa2 rating for long-term deposits and a Prime-2 rating for short-term deposits to Bank South.

Bank South Corp.'s subordinated debt was placed under review on June 2 for a possible upgrade.

"The upgrade reflected the recent lifting of formal agreements with the [Office of the Comptroller of the Currencyl and the Federal Reserve Bank of Atlanta, under which the bank had been operating since mid-1991," Moody's said in a release. "The upgrade was also in response to Bank South's improved asset quality, earnings, capital levels, and holding company liquidity. "Nevertheless, over the long run, the company's franchise, which is concentrated in the state of Georgia, will continue to be pressured by strong competition as super-regional banking companies expand and consolidate their operations in the state."

Standard & Poor's yesterday said it has revised its outlook on Office Depot Inc. to negative from stable. The rating agency also affirmed its BB-minus rating of Office Depot's subordinated debt. The company's implied senior rating is BB-plus. Rated debt outstanding totals $152 million.

"[Office Depot's] rating is affirmed following the announcement of the proposed purchase of Eastman Office Products Corp., a contract stationer, based in Signal Hill, Calif.," Standard & Poor's said in a release.

"S&P's preliminary analysis of the more than $200 million acquisition demonstrated no significant change in financial risk, as [Office Depot] plans on using a combination of bank debt, cash, and new equity to fund the purchase," the release says.

"[Office Depot] has maintained its leading position in the high-growth office supply superstore industry nationwide with strong management and financial flexibility provided by the sale of $316 million of liquid yield option notes in late 1992."

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