WASHINGTON – Wholesale prices retreated by 0.3 percent in November, pulled down by falling costs for gasoline, beef and cars, suggesting that inflation doesn't pose a threat to the economy's resurgence.
The decline in the Producer Price Index (search), which measures prices before they reach store shelves, came after prices rose by 0.8 percent in October, the Labor Department (search) reported Friday. That jump had unsettled some analysts who worried whether the seeds of inflation were being planted and could take root down the road.
Economists were expecting wholesale prices to calm down in November after October's big increase. But they were forecasting a tiny, 0.1 percent rise.
The 0.3 percent drop marked the first decline in wholesale prices since May.
Excluding energy and food prices, which can swing widely from month to month, "core" wholesale prices dipped by 0.1 percent in November, down from a 0.5 percent advance in October. Analysts were expecting core prices for last month to be flat.
In another report, the Commerce Department (search) said the trade deficit soared to $41.77 billion in October. Shoppers preference for imports hit a record high, offsetting a sizable gain in exports, including the best showing for sales of farm products in seven years.
The October trade imbalance was up 1 percent from a September deficit of $41.34 billion and was the biggest deficit number in seven months.
Because inflation has been tame, the Federal Reserve (search), at its last regularly scheduled meeting of the year Tuesday, held a key short-term interest rate at a 45-year low of 1 percent and suggested it could stay there for some time.
Fed policy-makers also said the dangerous prospect that inflation could move lower was less of a concern than it has been. "The probability of an unwelcome fall in inflation has diminished in recent months and now appears almost equal to that of a rise in inflation," they said.
That marked a noteworthy change from recent months where Fed policy-makers identified the remote threat of deflation, a widespread and prolonged price decline, as a risk that they must be on guard against because of its potential to wreck the economy.
The worries about deflation should dim as the economy gains traction, analysts say.
The economy grew at a scorching 8.2 percent annual rate in the third quarter, the hottest pace in nearly two decades. Analysts believed the economy slowed to a 4 percent growth rate in the October-to-December quarter, which would still be considered a healthy pace.
Still, in November price declines were fairly widespread — possibly raising new questions as to the prospects of deflation.
Energy prices fell by 1.2 percent last month, after dipping by 0.1 percent in October. Gasoline prices in November dropped by 4.8 percent, home heating oil fell by 1.6 percent and residential natural gas prices went down by 1.1 percent.
Food prices declined by 0.3 percent last month, compared with a 2.2 percent jump in October. The decline last month in part reflected a 4.7 percent drop in the price of beef and veal.
Elsewhere in the report: car prices dropped by 0.8 percent in November and communications equipment fell by 0.4 percent.
The current economic climate makes it difficult for producers to raise prices, which is a benefit for consumers, but can squeeze producers' profit margins.