US wholesale prices up 0.1 percent; core prices down 0.4 percent

Filed on September 19, 2006

WASHINGTON - US wholesale prices edged up 0.1 percent in August, the government said on Tuesday in a further sign of easing inflation pressures.

The Labour Department report on the producer price index (PPI) was tamer than the 0.3 percent increase expected by analysts.

Additionally, the core index -- excluding food and energy -- fell 0.4 percent, despite expectations for a 0.2 percent rise.

The report followed a 0.1 percent rise in the headline index for July and a 0.3 percent drop in the core rate.

It provided further evidence that inflation is easing after being fed by surging energy costs earlier in the year. The data could help persuade the Federal Reserve, which meets Wednesday, to keep interest rates unchanged.

The Fed paused last month after 17 consecutive quarter-point rate increases that lifted the federal funds rate to 5.25 percent.

Peter Morici, an economist at the University of Maryland School of Business, said inflation may be even less of a problem as a result of the decline in energy costs in recent weeks.

“Since early August, crude oil prices have fallen nearly 15 dollars a barrel and gasoline has dropped more than 50 cents a gallon,” he noted.

“Inflation should cool significantly in September and October, and the Fed should become more comfortable, keeping interest rates at current levels.”

Over the past 12 months, the PPI is up 3.7 percent, while the core rate is up just 0.9 percent.

The August report marked the first time since 2002 that the core PPI has declined for two consecutive months.

The 0.4 percent drop in the core rate is the steepest since April 2003, a Labor Department official said.

The report showed gasoline prices led the downward movement with a 2.2 percent drop in August. Still, motor fuel prices are up 20.9 percent from a year ago.

Overall energy prices were up 0.3 percent for the month, led by rises in jet fuel and natural gas.

Last week, the Labour Department said the consumer price index (CPI) rose a modest 0.2 percent in August, with core prices also up 0.2 percent.

Dick Green, an analyst at, called the latest date ”extremely good news on the inflation front.”

The wholesale report “suggests that there will not be much inflation coming through to the CPI level in the immediate months ahead from the producer level,” he added.

“The data strongly supports the argument that the Fed should hold off on any policy change for now and wait further to see how inflation at the consumer level trends in the months ahead.”

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