U.S. producer prices drop for record sixth month in row
July 11/97
WASHINGTON (Reuter) - Wholesale prices fell for a record sixth consecutive month in June as
food costs plunged, the Labor Department said Friday in a report that was likely to be greeted
warmly on Wall Street.
The 0.1 percent drop in producer prices last month followed a 0.3 percent decline in May.
Excluding volatile food and energy costs, wholesale prices rose 0.1 percent last month after a 0.3
percent decline in May.
Wall Street analysts had expected prices paid to producers of goods ranging from grain to
computers to hold steady in June.
"Six consecutive monthly declines in producer prices is really an extremely favorable inflationary
report suggesting that there's not the slightest hint of inflation in the producing sector of the
economy. It has been wrung out completely," said David Jones, vice chairman and chief economist
at Aubrey G. Lanston & Co. Inc.
"The bottom line here is that the goods producing sector, because of improved productivity,
cost-cutting and global competition, isn't showing the slightest hint of accelerating inflation despite
full employment conditions in the economy," he added.
Last month's unexpected price drop should reinforce growing sentiment among investors that the
economy can continue to grow strongly without generating inflation and that there is no need for the
Federal Reserve to raise interest rates further.
The June decline in wholesale prices was paced by a steep 0.9 percent drop in food costs. The
drop in food prices was broad-based, with prices for beef, veal, pork, poultry, fish and vegetables
all lower. Prices for fresh fruits and melons tumbled by more than 15 percent, their biggest decline
in more than six months.
Energy costs turned up last month, rising by 0.7 percent, after declining steadily for much of this
year. Gasoline prices rose unexpectedly, although heating oil costs dropped, by nearly 6 percent.
Prices of a variety of other products also rose modestly last month. Car prices increased by 0.3
percent, tobacco gained 0.1 percent and alcoholic beverage prices were up 0.5 percent. Computer
prices, which have been falling steadily, also rose in June, by 0.6 percent, after a steep drop in
May.
The producer price report showed there is little in the way of inflation in the pipeline. Prices of
intermediate goods, which are used to make finished wholesale products, were unchanged in June.
Prices of crude goods, materials at the start of the production process, fell by 3.3 percent.
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