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Wholesale prices drop 0.4 percent in November, biggest decline since May

Updated:

WASHINGTON (AP) _ Wholesale prices plunged by 0.4 percent in November, the biggest decline in six months, as costs fell sharply for gasoline and cars and sporting goods prices registered a record drop.

The sizable drop in the Producer Price Index, which measures prices of goods before they reach consumers, came after wholesale prices shot up by 1.1 percent in October, the Labor Department reported Friday.

The latest snapshot of prices at the wholesale level surprised analysts. They were forecasting prices to be flat.

Falling wholesale prices _ assuming they show up in lower retail prices _ are one of the few benefits for consumers of a weak economy. But businesses whose product prices are going down can feel even more pressure on already strained profit margins.

The 0.4 percent decline in the PPI in November from the previous month matched a drop in wholesale prices registered in May.

On Wall Street, stocks fell as investors grew skeptical of the market's big autumn rally. The Dow Jones industrial average was down 89 points and the Nasdaq was off 28 in morning trading.

With inflation clearly a no-show, the Federal Reserve left interest rates unchanged Tuesday at a 41-year low of 1.25 percent. At the Fed's previous meeting on Nov. 6, policy-makers slashed rates by a bold half-point. That was the first rate cut this year.

One reason behind November's reduction was Fed policy-makers' interest in warding off a risk of deflation, a prolonged bout of falling prices.

``A failure to take action that was needed because of a faltering economic performance would increase the odds of a cumulatively weakening economy and possibly even attendant deflation,'' the Fed said in minutes of the November meeting.

One week after Nov. 6, Greenspan, appearing on Capitol Hill, dismissed concerns that the Fed was in danger of running out of ammunition just at a time when economic weakness could trigger deflation.

He said the United States was not ``close to a deflationary cliff.'' If such a threat did emerge, Greenspan said, the Fed was prepared to use a variety of tools to boost the money supply beyond its normal approach of targeting the federal funds rate.

In November, much of the overall drop in wholesale prices reflected a 1.8 percent drop in energy prices, as tension receded about supply disruptions that could come from a possible war with Iraq. Those concerns were a factor in driving energy prices up by 4.2 percent in October.

Gasoline prices went down by 9 percent in November and heating oil fell 11.1 percent, the biggest decline since December 2001.

Excluding volatile energy and food prices, which can swing widely from month to month, ``core'' wholesale prices fell by 0.3 percent in November from the previous month. The decline, which came after a 0.5 percent increase, also marked a better performance in core wholesale prices than the flat reading analysts were forecasting.

Car prices dropped 3.6 percent in November, the biggest decline since October 2001.

Costs for sporting goods fell by a record 3.1 percent last month, exceeding the previous record drop of 2.2 percent in November 1992.

Telephone equipment prices went down 1.4 percent in November, the largest decline since April 2001.

Food prices rose 0.3 percent in November, down from a 0.7 percent increase in October.

In another report, the Commerce Department said businesses boosted stockpiles of unsold goods by 0.2 percent in October from the previous month, a sign that businesses were betting that there would be demand for their products. The increase in inventories was accompanied by a 0.4 percent rise in businesses' sales in October.

In September, business inventories rose by 0.6 percent as sales slid by 0.7 percent.

The economy is recovering from last year's recession, but in fits and starts, a challenge for companies as they try to make plans and gauge both consumers' and businesses' appetites for their products.
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