WASHINGTON: U.S. wholesale prices declined in July for the first time in almost a year, further evidence of soft inflation that is bedeviling the Federal Reserve. The producer-price index fell 0.1% in July, the Labor Department said Thursday, the first drop since last August. The core rate, which excludes volatile categories of food, energy and trade, was flat in the month.
Economists surveyed by MarketWatch were expecting a small gain of 0.1% in the producer-price index. Price pressures weren’t evident in any major category. The price of goods dropped 0.1% last month. Wholesale energy prices sank 0.3% and food prices were flat. The cost of services fell 0.2%. “With major moves in prices at the producer level necessary to spark significant shifts in prices at the consumer level, we do not believe there is any cause for concern whatsoever, in either direction, from recent PPI data,” said Josh Shapiro, chief U.S. economist at MFR Inc. in New York. Over the past year overall producer prices decelerated to a 1.9% annual rate, and have steadily dipped from a high of 2.5% in April. The July annual rate is the lowest since January. Core wholesale prices have risen 1.9% in the same span, down from a 2% rate in June.
The slowdown has surprised the Fed and prompted some senior central-bank officials to question whether further rate increases are merited in an environment of stubbornly low consumer prices and inflation. ”The real point here is not to rebuke the Fed but to ponder what these trends mean for growth and for the next step in Fed policy. Will the Fed continue on with its balances sheet and rate-hiking plans or not?” asked Robert Brusca, chief economist at FAO Economics. U.S. stocks were lower in early action, with the Dow Jones Industrial Average DJIA, -0.93% and the S&P 500 index SPX, -1.45% on pace to drop for the third session in a row.