Producer prices plunge on energy costs
WASHINGTON–U.S. wholesale inflation plunged in August by the largest amount in nearly two years, reflecting a steep drop in energy prices. The Labor Department reported yesterday that wholesale prices fell 0.9 per cent last month, nearly double the 0.5 per cent decline that economists had been expecting.
The price moderation followed three months in which wholesale costs had shot up at levels exceeding 1 per cent a month as energy costs had surged.
Core inflation, which excludes energy and food, was also well-behaved, edging up just 0.2 per cent in August, right in line with expectations, and well below the 0.7 per cent spike of the previous month.
The sharp retreat in wholesale prices will be welcome news at the Federal Reserve, which had been worried that it might have to start raising interest rates if inflation pressures did not start to moderate.
Fed officials are expected to keep rates unchanged when they meet next Tuesday.
With inflation retreating, they will likely hold rates steady for the rest of this year.
If the Fed had been forced to start raising interest rates it would have presented another problem for an economy facing a host of headwinds from rising unemployment, a prolonged housing recession, a severe credit crunch and a troubled financial system.
The 0.9 per cent drop in wholesale prices, the largest one-month decline since October 2006, could show up in lower prices for shoppers eventually first cash advance.
Even with the August decline, wholesale prices over the past 12 months are up by 9.6 per cent.
For August, gasoline prices at the wholesale level fell by 3.5 per cent, the price of natural gas fell by 5 per cent, home heating oil costs were down 13.6 per cent and the cost of liquefied petroleum gas fell by 19.5 per cent.
Food costs edged up 0.3 per cent in August, matching the July gain. The 0.2 per cent rise in prices excluding food and energy left core inflation rising by 3.6 per cent over the past 12 months, the highest since a 3.7 per cent increase for the 12 months ending in May.
Associated Press