Wholesale Prices Dip as Food Costs Tumble

The biggest drop in food costs in nearly three decades helped drive down wholesale prices 0.2% in April.

The decline in the producer price index, which measures prices paid to factories, farms and other producers, marked a turnaround from the sharp 1% increase in March, the Labor Department said Friday.

The index is an important gauge of inflation at the wholesale level.

Excluding volatile food and energy prices, the “core” rate of wholesale inflation nudged up 0.1% for the second straight month.

“Inflation is the least of our economic worries both right now and for the foreseeable future,” said Oscar Gonzalez, an economist with John Hancock Financial Services Inc.

Given April’s tame readings, Federal Reserve policymakers have leeway to keep short-term interest rates at 40-year lows to help along the economic recovery, economists said.

Some predicted rates will remained unchanged into the fall. Others suggested the Fed might hold off even longer.

Citing uncertainties about the vitality of the recovery, the Fed decided Tuesday to hold rates steady.

For the 12 months ended April, wholesale prices fell 2%.

Falling prices can offer some good deals for consumers. But for companies whose product prices are going down, it means more pressure on already pressed profit margins.

Companies are worried about the recovery’s staying power and are reluctant to make big hiring and investment commitments, another factor affecting the strength of the rebound.

Prices for all food items fell 3.2% in April, the biggest decrease since June 1974. That drop reflected a record 46.5% plunge in vegetable prices. Prices for eggs, fruit, pork, chicken and beef also went down.

A big factor behind the drop in vegetable prices was an 86.9% decline in the cost of lettuce, economists said.

Lower prices for clothing and light trucks, including sport utility vehicles, also contributed to the drop in overall wholesale prices.

Clothing prices went down 0.7%, the biggest decline in nearly 20 years, as retailers, concerned about lackluster sales, discounted merchandise to motivate shoppers, economists said.

Light-truck prices fell 1.4% as less-expensive imported vehicles pressured U.S. makers to reduce prices, said Paul Taylor, chief economist at the National Automobile Dealers Assn.

Energy prices moderated. After rising 5.5%--a jump largely responsible for pushing overall wholesale prices up sharply in March--energy prices increased 2.5% in April.