Wholesale Prices Fall, Retail Sales Rise in August

Wholesale prices fell for the first time in four months and retail sales rose modestly in August, increasing the odds that the Federal Reserve won’t raise interest rates for the rest of the year.

Taken together, Thursday’s reports show that the Fed’s 15-month string of interest rate increases is working to ward off inflation and keep the record-breaking economy on an even keel, economists said.

The producer price index, which measures inflation pressures before they reach consumers, fell by an unexpected 0.2% in August, driven down by falling costs for gasoline, the Labor Department said. Economists expected surging energy prices to push up overall wholesale prices, which were flat in July.

But August’s PPI report, based on information from earlier in the month, didn’t catch big increases in gasoline and other energy prices late in the month, economists said. As a result, they expect September’s report to show sharply higher energy costs.

Outside the volatile energy and food categories, the core rate of inflation at the wholesale level rose for the second straight month by a tiny 0.1% in August, additional evidence inflation is under control, economists said.

Excluding auto sales, retail sales rose 0.3%, below the 0.8% increase reported for July. Auto sales fell 0.4% in August, following a 1.1% gain in July.

Meanwhile, the Commerce Department said retail sales rose 0.2% in August, following a 0.9% gain the month before.

August’s spending was tempered in part by a drop in sales at gasoline stations, reflecting lower prices at the pump. Americans also ate out less and bought fewer cars, but they snapped up home furnishings and clothes.

“Add the relatively soft retail sales numbers to the noninflationary PPI data and you have a prescription for the Fed on hold for the rest of this year,” said economist Joel Naroff of Naroff Economic Advisors.

For the first eight months of this year, wholesale prices have been rising at an annual rate of 3.2%, compared with a 3% gain for all of 1999. The pickup has come from higher energy costs, a result of production limits by oil-producing nations.

In the PPI report, energy costs fell in August by 0.2%, led by a 2.8% drop in gasoline prices. But costs for heating oil and residential electricity rose 2% and 1%, respectively.

The report also showed that food prices fell 0.7% last month, the best showing since April 1999.

Prices for children’s clothing declined 2.6%, the biggest drop since January 1988. Car prices fell 0.3% and light truck prices went down 0.1%.

In another sign of a moderating economy, the Labor Department said the number of Americans filing new claims for unemployment benefits rose by 13,000 to 324,000 last week, the highest level since January 1999.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Producer Prices

Index of finished goods prices; 1982=100; seasonally adjusted:

August: 137.8

Source: Bureau of Labor Statistics