Wholesale Prices Dip 0.2 Percent

WASHINGTON – Wholesale prices dipped by 0.2 percent in July, providing more good news on the inflation front and giving Federal Reserve policy-makers leeway to keep interest rates at 40-year lows to help along the limping recovery.

The latest reading on the Produce Price Index, which measures prices of goods before they reach store shelves, was better than the 0.1 percent increase many analysts were forecasting.

Falling prices for cars, trucks, fruits, chickens, communications equipment and computers outweighed rising prices for gasoline and heating oil, the Labor Department reported Thursday.

The dip in wholesale prices came after prices nudged up by 0.1 percent in June.

In another report, new claims for unemployment insurance fell last week, suggesting that the pace of layoffs is stabilizing. The department said claims dropped by a seasonally adjusted 15,000 to 376,000, a lower level than many analysts were forecasting.

The more stable four-week moving average of claims went down to 379,000 last week, the lowest level in 17 months. The moving average has been below the 400,000 mark — a level associated with weakness in the job market — for eight straight weeks, another encouraging sign.

Even if companies reduce the speed at which they lay off workers, they won't be in a rush to hire employees back, economists predict. That's because companies, uncertain about the economic recovery, have been reluctant to make big commitments in hiring and in capital spending, factors that are restraining the economy's return to full health.

After bolting out of the starting gates at the beginning of the year, the economy has slowed to a growth rate of just 1.1 percent in the second quarter. That is down from a brisk 5 percent pace in the first three months of this year.

Early economic reports thus far have pointed to a disappointing start for the second half of the year, prompting some economists to lower their forecasts for economic growth in the current quarter and the fourth quarter. Some predict economic growth in the second half could be in the range of around 2 percent to 3 percent.

Against this backdrop, many economist believe the Fed is likely to leave short-term interest rates unchanged at its next meeting on Aug. 13. But some haven't ruled out a rate cut.

Low interest rates might motivate consumers to spend more and businesses to step up investment, which would bolster economic growth.

For the 12 months ending July, wholesale prices fell 1.1 percent, showing that inflation remains under control. Falling prices can offer some good deals for consumers. But for companies whose product prices are going down, it means more pressure on already pressed profit margins.

In July, car prices dropped 1.5 percent, the biggest decline since October. Prices for light trucks, such as SUVs, declined 1.6 percent. Communications equipment prices went down by 1 percent, the largest drop since March 1998.

Prices for food edged down 0.1 percent in July. Falling prices for fruits, dairy products, beef and chickens swamped rising prices for vegetables, pork and fish.

Energy prices nudged up 0.1 percent in July as higher prices for gasoline and home heating oil were blunted by lower prices for residential natural gas and residential electric power.

Excluding energy and food prices, the "core" rate of inflation at the wholesale level fell by 0.3 percent in July. That was the biggest decline in nine months and followed a modest 0.2 percent increase in June.