Wholesale Inflation Falls Slightly in June

Inflation at the wholesale level dipped 0.1% in June as a second big monthly jump in drug costs was offset by falling energy prices, government figures showed Friday.

The Labor Department said its producer price index, which measures inflation pressures before they reach the consumer, fell for the fourth time this year following gains of 0.2% in both April and May.

The June decline was led by a 1.7% drop in energy prices, the eighth decline in the last nine months. Drug costs, which had soared a record 10.7% in May, were up again in June, rising 3.2%.

The overall 0.1% price decline was in line with economists’ expectations. It supported the view that inflation still poses no threat to a U.S. economy and will allow the Federal Reserve Board to keep interest rates steady.

“This is another reason for the Fed to sit back and not do anything in the way of policy changes,” said Robert Dederick, economist at Northern Trust Co. in Chicago. “The Asian shock and the strong dollar are holding down the price of imported goods and keeping domestic firms from raising prices.”

Excluding the volatile energy and food categories, the so-called core rate of inflation at the wholesale level was up 0.2%, matching the gains in April and May.

But Labor Department economists said that without the second big monthly jump in drug prices, the core inflation rate would have been up just 0.1%.

Through the first six months of this year, wholesale inflation has been falling at an annual rate of 1.5%.

The news has been almost as good at the consumer level, where through May, retail prices were rising at an annual rate of just 1.5%. That is even better than the 11-year low of 1.7% turned in during 1997.

The 1.7% drop in energy prices in June followed a rare 0.8% increase in May that had been triggered by a big rise in the cost of gasoline. Before May, wholesale energy prices had fallen for seven straight months.

Food costs edged up a slight 0.1% in June following a 0.3% decline the previous month. While there was a 7% surge in pork prices, most food categories showed declines.

Prices for passenger cars were up 0.3% in June following a 1.7% decline in May. Prices of tobacco, which had been rising sharply in recent months as tobacco companies have been raising prices to recoup costs for settling multimillion-dollar liability lawsuits, edged up just 0.1% in June.