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Wholesale Prices Drop 0.4 Percent
By MARTIN CRUTSINGER
.c The Associated Press
WASHINGTON (AP) - Prices at the wholesale level plunged 0.4 percent in June as record declines in residential electricity and natural gas prices and a big drop in gasoline costs gave the country the best performance on wholesale inflation in more than two years.
The Labor Department reported that the drop in its produce price index, which measures price pressures before they reach the consumer, was the first decline since last August and the biggest drop since a 0.5 percent fall in February 1999.
Analysts had been expecting that inflation would moderate after steep increases earlier this year driven by a big jump in energy prices. They also said the sharp slowdown in economic activity was helping to ease inflationary pressures as wage demands soften with the rising jobless rate.
Meanwhile, a second report Friday showed that retail sales rose 0.2 percent in June, pushed up by a strong 1.5 percent surge in sales of new cars. While the overall number was slightly weaker than analysts had been expecting, the government revised its estimate for May sales sharply higher to 0.4 percent, rather than the original estimate of a much smaller 0.1 percent gain.
Beginning last summer, U.S. economic growth has slowed dramatically, with many analysts believing that growth in the just completed April-June quarter will come in at a weak annual rate of 0.5 percent, even worse than the 1.2 percent growth recorded in the first three months of the year.
Still, economists believe consumers will keep the economy out of a full-blown recession with their spending expected to increase in coming months, reflecting the boost provided by lower interest rates and the big tax cut passed by Congress.
The Federal Reserve has cut interest rates six times so far this year, its most aggressive credit easing in the next two decades, in an effort to make sure that the U.S. economy does not tip into recession.
Analysts said the good news on inflation will give the Fed room to cut interest rates further if needed to provide fuel for an economic rebound. The Fed's next meeting is Aug. 20.
Ken Mayland, chief economist at ClearView Economics in Cleveland, said that both the benign report on wholesale prices and the moderate gain in retail sales pointed to an economy that would rebound in the second half of this year.
``There is reason to be optimistic about the economy's prospects. We are going to be transitioning to considerably better growth in the third quarter,'' said Mayland, whose own forecast puts overall economic growth at a 3 percent rate in the third quarter, three times the 1 percent growth figure he expects for the second quarter.
President Bush, who next week will attend his first economic summit of the world's seven richest countries in Genoa, Italy, is counting on the Fed's rate cuts and the stimulative effect of his $1.35 trillion tax cut, to lift the economy to a stronger growth rate later this year.
The 0.4 percent drop in wholesale prices in June left inflation at this level rising at an annual rate of 2.4 percent through the first six months of this year, far better than last year's 3.6 percent.
The news was just as good excluding volatile energy and food prices. The so-called core rate of inflation edged up just 0.1 percent in June, even better than the small 0.2 percent increases in April and May. So far this year, the core rate of inflation at the wholesale level is rising at an annual rate of just 1.6 percent.
For June, the big drop in overall prices was led by a 2.5 percent plunge in energy costs, the biggest one-month decline since a 3.5 percent drop in April 2000.
The good news on energy reflected record drops of 1.5 percent in residential energy costs and 5.8 percent in natural gas prices. Gasoline prices fell by 3.7 percent, the biggest decline since a 3.9 percent fall last August.
Economists had been predicting that energy prices would retreat following a sharp run-up last winter that was caused by a shortage of supplies. Still, residents of California face difficult problems and potential power shortages this summer because of the shortage of electrical generating capacity.
Motorists this summer have been getting a break at the gas pump after world crude oil prices eased and refiners rushed to fill shortages that developed during the spring.
Food prices in June edged up 0.1 percent after having fallen by 0.4 percent in May. The increase reflected gains of 0.9 percent for beef and 1.6 percent for dairy products.
Outside of food and energy, prices remained well contained.
Prescription drug prices fell by 0.7 percent, their biggest drop since January 1999.
Tobacco prices, which had risen a sharp 4.9 percent in May, were up just 0.1 percent in June.
New car prices rose 0.1 percent in June after having falling 0.1 percent in May.
By MARTIN CRUTSINGER
.c The Associated Press
WASHINGTON (AP) - Prices at the wholesale level plunged 0.4 percent in June as record declines in residential electricity and natural gas prices and a big drop in gasoline costs gave the country the best performance on wholesale inflation in more than two years.
The Labor Department reported that the drop in its produce price index, which measures price pressures before they reach the consumer, was the first decline since last August and the biggest drop since a 0.5 percent fall in February 1999.
Analysts had been expecting that inflation would moderate after steep increases earlier this year driven by a big jump in energy prices. They also said the sharp slowdown in economic activity was helping to ease inflationary pressures as wage demands soften with the rising jobless rate.
Meanwhile, a second report Friday showed that retail sales rose 0.2 percent in June, pushed up by a strong 1.5 percent surge in sales of new cars. While the overall number was slightly weaker than analysts had been expecting, the government revised its estimate for May sales sharply higher to 0.4 percent, rather than the original estimate of a much smaller 0.1 percent gain.
Beginning last summer, U.S. economic growth has slowed dramatically, with many analysts believing that growth in the just completed April-June quarter will come in at a weak annual rate of 0.5 percent, even worse than the 1.2 percent growth recorded in the first three months of the year.
Still, economists believe consumers will keep the economy out of a full-blown recession with their spending expected to increase in coming months, reflecting the boost provided by lower interest rates and the big tax cut passed by Congress.
The Federal Reserve has cut interest rates six times so far this year, its most aggressive credit easing in the next two decades, in an effort to make sure that the U.S. economy does not tip into recession.
Analysts said the good news on inflation will give the Fed room to cut interest rates further if needed to provide fuel for an economic rebound. The Fed's next meeting is Aug. 20.
Ken Mayland, chief economist at ClearView Economics in Cleveland, said that both the benign report on wholesale prices and the moderate gain in retail sales pointed to an economy that would rebound in the second half of this year.
``There is reason to be optimistic about the economy's prospects. We are going to be transitioning to considerably better growth in the third quarter,'' said Mayland, whose own forecast puts overall economic growth at a 3 percent rate in the third quarter, three times the 1 percent growth figure he expects for the second quarter.
President Bush, who next week will attend his first economic summit of the world's seven richest countries in Genoa, Italy, is counting on the Fed's rate cuts and the stimulative effect of his $1.35 trillion tax cut, to lift the economy to a stronger growth rate later this year.
The 0.4 percent drop in wholesale prices in June left inflation at this level rising at an annual rate of 2.4 percent through the first six months of this year, far better than last year's 3.6 percent.
The news was just as good excluding volatile energy and food prices. The so-called core rate of inflation edged up just 0.1 percent in June, even better than the small 0.2 percent increases in April and May. So far this year, the core rate of inflation at the wholesale level is rising at an annual rate of just 1.6 percent.
For June, the big drop in overall prices was led by a 2.5 percent plunge in energy costs, the biggest one-month decline since a 3.5 percent drop in April 2000.
The good news on energy reflected record drops of 1.5 percent in residential energy costs and 5.8 percent in natural gas prices. Gasoline prices fell by 3.7 percent, the biggest decline since a 3.9 percent fall last August.
Economists had been predicting that energy prices would retreat following a sharp run-up last winter that was caused by a shortage of supplies. Still, residents of California face difficult problems and potential power shortages this summer because of the shortage of electrical generating capacity.
Motorists this summer have been getting a break at the gas pump after world crude oil prices eased and refiners rushed to fill shortages that developed during the spring.
Food prices in June edged up 0.1 percent after having fallen by 0.4 percent in May. The increase reflected gains of 0.9 percent for beef and 1.6 percent for dairy products.
Outside of food and energy, prices remained well contained.
Prescription drug prices fell by 0.7 percent, their biggest drop since January 1999.
Tobacco prices, which had risen a sharp 4.9 percent in May, were up just 0.1 percent in June.
New car prices rose 0.1 percent in June after having falling 0.1 percent in May.
