>>Wholesale Prices Drop 0.4 Percent
By THE ASSOCIATED PRESS
Filed at 9:04 a.m. ET
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
nearly 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.
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.<<
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