Wholesale Prices Fall Unexpectedly in July

Wholesale prices of food, cars and computers unexpectedly fell in July, the Labor Department reported Thursday, giving the Federal Reserve room to cut interest rates to bolster the faltering U.S. economic recovery.

The 0.2% drop in the government’s producer price index of what factories, farms and other producers receive for their goods followed a 0.1% increase in June. The index is a closely watched gauge of inflation at the wholesale level.

The so-called core index, which excludes food and energy, fell 0.3%, the biggest decline since October. Economists had expected a 0.1% increase.

The Labor Department also said the number of U.S. workers filing new claims for state jobless benefits was down more than expected last week.

Fed policymakers meet next week, and economists say they probably will declare that slowing growth poses a greater risk than inflation to the fledgling recovery. Adding to evidence the economy is flagging, Wal-Mart Stores Inc., Target Corp. and other retailers reported Thursday that sales at stores open at least a year rose less than expected.

As for the jobless claims, states last week received 376,000 initial applications for unemployment benefits, a decrease of 15,000. Analysts had expected claims to fall to 385,000 from a previously reported 387,000, based on the median of 30 forecasts in a Bloomberg News survey. The four-week moving average of claims dropped to 379,000, the lowest since March 2001, when U.S. employment peaked and the recession was starting.

Although new applications fell, the number of people continuing to collect benefits rose by 51,000 to 3.53 million in the week that ended July 27. The insured unemployment rate rose to 2.8%. That measure of the number of people receiving benefits as a share of those employed tends to move with the overall jobless rate.

The numbers indicate “sluggish growth in payrolls and a relatively steady or slightly higher unemployment rate,” said Stephen Stanley, an economist at Greenwich Capital Markets Inc. in Greenwich, Conn.

Manufacturing and services stalled in July; unemployment stayed near an eight-year high; and from April to June the economy grew one-fifth as much as in the first three months of the year.

Passenger car prices fell 1.5% after rising 0.4%. Light-truck prices fell 1.6% last month after rising 0.5%.