Producer Prices Decline for 6th Straight Month
Prices charged by manufacturers, utilities and others fell in June for the sixth consecutive month, the government reported Friday. It was the longest string of such declines since the government began tracking these prices in 1947.
The Labor Department said the producer price index, which measures changes in the prices that producers charge when goods are first sold after completion, fell 0.1% last month after declines of 0.2% to 0.6% each month from January through May. Changes in the index usually show up later in the cost of these goods at the retail level.
“Basically, there is simply no pressure in the inflation pipeline,” said Bruce Steinberg, chief economist at Merrill Lynch & Co. in New York. “We look for a stable inflation rate during the next year and would not rule out further disinflation.”
Signs of low inflation are welcomed by financial markets, and both stock and bond prices rose Friday. The Dow Jones industrial average rose 35 points to 7,921.82, and the price of the 30-year Treasury bond rose, pushing its yield down to 6.52% from 6.56% Thursday.
Analysts said the decline in prices of finished goods reflects in large part greater efficiencies by producers. While part of the drop in finished goods’ prices stemmed from falling food and energy prices, prices of other goods were slightly lower in June than they were at the end of last year.
Even though economic growth was strong early this year and the nation’s unemployment rate is down to an unusually low 5%--conditions that in the past have caused inflation to increase--the prices of many commodities have been falling in recent months. For example, three indexes that measure commodity-price movements all are lower than they were at the beginning of the year.
Economists, financial analysts and company executives cite a range of factors to account for the absence of inflation at the producer level even though the demand for goods of all types has been rising solidly for several years. Essentially, they boil down to the fact that there are virtually no shortages of any materials or products to give producers the power to make price increases stick in highly competitive markets.
In the agricultural area, this contrasts sharply with last year, when strong demand, poor crops in earlier years and drought combined to raise prices of wheat, corn and soybeans to high levels. On Friday, the Agriculture Department predicted that U.S. farmers would harvest bumper crops of winter wheat and soybeans. Corn production will be down slightly because lower prices prompted growers to plant fewer acres, the department said.
Many industrial producers believe that raising prices could cost them part of their share of the market and hurt rather than help their profits. As a result, producers are concentrating on holding down costs while operating more efficiently, according to Norbert J. Ore, director of purchasing at Sonoco Products Co. in Hartsville, S.C.
A major investment in information technology also has enabled firms to cut costs by allowing them to manage inventories more closely, to schedule production more carefully and to forecast more precisely future requirements for materials and other inputs to the production process, Ore said.
