Wholesale prices dipped by 0.1 percent in August

Wednesday, September 8th 2004, 7:00 pm
By: News On 6

WASHINGTON (AP) _ Wholesale prices dipped 0.1 percent in August as a retreat in food costs helped to blunt a rise in the price of some energy products, a fresh sign that inflation isn't currently a problem for the economy.

The decline in the Producer Price Index, which measures costs of goods before they reach store shelves, came after wholesale costs edged up by 0.1 percent in July, the Labor Department reported Friday.

Exluding food and energy costs, which can swing widely from month to month, the core prices also fell in August by 0.1 percent. That followed a 0.1 percent rise the previous month.

The inflation picture painted by the report was better than economists were expecting. They were forecasting a 0.2 percent rise in overall wholesale prices and a 0.1 percent increase in core prices.

The latest snapshot of the inflation climate comes as President Bush and his Democratic rival, John Kerry, offer widely different views over the health of the economy as they try to win over voters less than two months before Election Day.

In another report, the U.S. trade deficit fell to $50.15 billion in July, but that still represented the second highest imbalance on record. American exports of cars, airplanes and computers rose while imports declined for the first time in nearly a year.

The Commerce Department reported Friday that the 8.9 percent improvement in the deficit in July followed a 16.9 percent surge in June which had pushed the trade gap to a record $55.02 billion.

Federal Reserve Chairman Alan Greenspan, in a Capitol Hill appearance earlier this week, said worries about an unwanted advance in inflation appeared to have eased recently despite high oil prices.

He said the economy, which has picked up after a spring lull, would be doing even better if oil prices hadn't gone up sharply. High energy prices were blamed for the big slowdown in consumer spending in the April-to-June quarter.

Still, Greenspan and his Fed colleagues have expressed confidence that economic activity would pick up. Private economists are forecasting growth rates in the July-to-September quarter of 3 percent to just over 4 percent.

Against that backdrop, many economists believe the Fed on Sept. 21 will boost short-term interest rates for a third time this year, a move aimed at keeping inflation from becoming a problem.

That would push up a key Fed rate to 1.75 percent, from the current 1.50 percent. By historical standards, short-term interest rates are quite low, something that some economists fret could sow the seeds inflation down the road.

Friday's report showed that food prices dropped by 0.2 percent in August, on top of a 1.6 percent decline.

Costs for diary products, beef and veal, chicken and eggs swamped a rise in prices for vegetables last month.

Prices for energy prices rose a modest 0.2 percent in August, down from a 2.3 percent jump in July.

A drop in gasoline prices last month helped to blunt a rise in prices for home heating oil, residential natural gas, residential electric power and liquefied petroleum gas, such as propane.