U.s. June Producer Prices Fall, 1st Drop In 3 Months, Led By Energy
Costs
U.S. Economy: Producer Prices Fall for First Time in 3 Months
Washington, July 10 (Bloomberg) -- Producer prices dropped in June for
the first time in three months as energy costs retreated, the latest
evidence inflation isn't threatening the U.S. economy. A separate crop
report suggests food prices will remain tame.
The Labor Department's producer price index unexpectedly fell 0.1
percent last month. The core rate of the PPI, which excludes food and
energy costs, rose 0.2 percent in June. Absent a 3.2 percent increase in
prescription drug costs, the core rate would have risen 0.1 percent, a
government spokesman said. In May, the PPI and the core rate both
increased 0.2 percent.
Separately, the Agriculture Department raised its estimate of the U.S.
wheat crop by 5 percent to 2.522 billion bushels -- a level that will
keep processors well-stocked and food prices subdued, analysts said.
''Inflation is going to stay low as long as Asia remains in a
recession,'' said Suzanne Rizzo, an economist at Maria Fiorini Ramirez
Inc., a New York consulting firm. ''That creates a huge supply of cheap
goods for America consumers and producers, keeping prices down.''
That also suggests Federal Reserve policymakers will hold interest rates
steady this year, and Fed Governor Roger Ferguson hinted as much
yesterday. ''Continued strong economic growth with low inflation is not
outside the realm of possibility, and by adopting a cautious policy
posture, we may learn more clearly if that possibility is likely or
remote,'' Ferguson said in a speech at the Atlanta Fed Bank.
Benefits From Asia
Asia's economic crisis is contributing to the tame inflation outlook by
depressing the value of Pacific Rim currencies and bolstering the value
of the dollar -- sending import prices lower. The crisis has caused oil,
food and other commodity prices to decline -- and that's helped hold
down U.S. interest rates.
Procter & Gamble Co. said it will reduce the price of Folgers coffee,
the best-selling U.S. brand, for the second time this year after the
cost of buying raw coffee beans plummeted. Brazilian farmers -- with the
world's largest production -- are now collecting a coffee crop that's
expected to be the largest in 11 years.
With U.S. inflation in check, and investors less concerned that the
value of their investments will be eroded, long-term bond yields have
fallen to historic lows. The yield on the Treasury's benchmark 30-year
bond dropped to 5.57 percent July 6, matching the low previously reached
June 15. In trading today, the bond was little changed, yielding 5.61
percent.
The dollar was little changed against other major currencies, and stocks
declined. The Dow Jones Industrial Average fell 42 points, or 0.46
percent, in late morning New York trading.
First Drop in Three Months
June marked the first time in three months that the PPI didn't increase.
Before April, the PPI had declined for five straight months.
For the first six months of the year, the PPI declined at an annual rate
of 1.5 percent, compared with a decline of 2.4 percent during the first
six months of 1997. Also during the first six months, the core PPI rose
at a 1.4 percent annual rate, compared with a 0.1 percent decline for
the first six months of last year.
By industry, wholesale energy prices fell 1.7 percent during June as the
price of petroleum declined 12.3 percent. Crude oil prices have fallen
from more than $18 a barrel at the start of the year to as low as $13 in
mid-June.
For the 12 months through May 1998, import prices fell 5.2 percent, led
by a 26 percent drop in oil costs, according to a Labor Department
report released June 11. The U.S. imports more than half its oil.
Producer food prices increased 0.1 percent in June. Auto prices at the
wholesale level rose 0.3 percent.
Tobacco prices increased 0.1 percent in June. A 3.4 tobacco price
percent increase in April accounted for half of that month's PPI
increase.
Drug Prices Up
Prescription drug prices rose 3.2 percent last month. Although such
drugs account for just under 2 percent of the PPI, a record 10.7 percent
drug price increase in May resulted in all of that month's increase, the
Labor Department said.
Mylan Laboratories Inc. of Pittsburgh recently raised prices on some of
its generic tranquilizers and those drugs could have been the ones that
showed in the May PPI report, analysts said. The large price increase of
lorazepam and 13 other generic drugs has also fueled speculation that
the company has cornered the market on raw materials for the drugs.
Representative Pete Stark, a California Democrat, has requested an
investigation by federal antitrust regulators into generic-drug prices.
Intermediate goods prices fell 0.3 percent in June, while intermediate
prices excluding food and energy fell 0.1 percent. Crude goods prices
fell 1.4 percent, while crude prices excluding food and energy fell 0.5
percent.
For all last year, the PPI dropped 1.2 percent -- the first decline
since 1991 -- after rising 2.8 percent in 1996. The core PPI rate rose
0.1 percent in 1997, the smallest gain on record, following a 0.6
percent increase in 1996. |
