Rise in Wholesale Prices Is Held to 0.1% for July

Wholesale prices rose a scant 0.1% in July, the government reported Wednesday, further evidence that the tepid recovery continues to wring inflation pressures from the economy.

Drops in the price of gasoline, home heating oil and computers--as well as steady food prices--helped keep inflation under control, the Labor Department said.

By contrast, car prices rose last month after falling in June and May, while soap and detergent prices jumped.

The July increase in the producer price index was in line with economists’ forecasts and followed a 0.2% gain in June.

The index measures prices charged by producers of finished goods to their customers and is considered a good indicator of future consumer prices.

Excluding volatile food and energy prices, the “core rate” of wholesale inflation rose 0.2% last month after falling 0.1% in June.

“Wholesale inflation is well in check,” said Robert Dederick, chief economist at Northern Trust Co. “The prolonged period of stagnation has caused a lot of pain, but there has been some payoff in the form of reduced inflation.”

The tame inflation picture gives the Federal Reserve room to cut interest rates further to spur the economy, without fear of igniting new price pressures.

Fed policy makers are scheduled to meet Tuesday to discuss the need for additional rate cuts, though they may defer action for now, according to economists.

The Bush Administration, worried that unemployment is stuck near an eight-year high of 7.7% with an election approaching, has been pressuring the Fed to cut interest rates further to boost the economy.

While some analysts said another small rate reduction could come as early as today if a government report on retail sales shows significant weakness, other economists said the Fed is likely to wait until early September, given the dollar’s current weakness.

Cuts in U.S. interest rates put downward pressure on the dollar as foreigners look elsewhere for better yields.

The price report underscores how the sluggish economic recovery is keeping inflation in check, even as it throws workers out of their jobs.

Faced with weak demand, manufacturers are unable to boost prices much, if at all. “If there’s no one anxious to buy your stuff, it’s very hard to get higher prices for it,” said Cynthia Latta, economist at DRI/McGraw-Hill Inc.

So far this year, the PPI has increased at a 1.8% seasonally adjusted annual rate.

Economists expect inflation to remain subdued for the rest of 1992 because of limited economic growth. Recent statistics portray an economy that is crawling along instead of emerging more robustly from recession, as is usually the case.

The price report showed that energy prices fell 0.4% in July after a 2.3% jump the previous month. The drop was led by a 4.5% slide in gasoline prices, while heating oil prices fell 0.7%.

Food prices were steady last month after rising 0.2% in June. The department said increases in the price of fresh vegetables, fish, meats and milk offset declines for fresh fruits, poultry, pork and coffee, among other goods.

Producer Price Index For Finished goods Seasonally adjusted change from prior month

July, ‘92: +0.1% June, ‘92: +0.2% July, ‘91: -0.2% Source: Labor Department