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Producer Prices Up in August

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From Reuters

U.S. producer prices, excluding surging energy costs, slipped slightly last month and the U.S. trade deficit narrowed unexpectedly in July. But economists said Hurricane Katrina probably meant greater price pressure and wider trade gaps ahead.

The producer price index, a gauge of prices received by farms, factories and refineries, shot up 0.6% last month as energy prices climbed 3.7%, the Labor Department said Tuesday in a report.

Stripping out the rise in energy costs, prices dipped 0.1%, reflecting a 0.3% drop in food prices that economists said was unlikely to be repeated as the bill for food imports climbs because of damage to Gulf Coast ports.

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The so-called core producer price index, which strips out both food and energy prices, was unchanged.

The Commerce Department said the U.S. trade deficit shrank 2.6% to $57.9 billion in July as exports hit an all-time high and a drop in imports of consumer and capital goods more than offset a record oil import bill.

Economists said the narrowing in the trade deficit would probably prove temporary, with higher oil prices and a need to step up oil imports to offset a hurricane-related loss of domestic production poised to push the gap wider again.

Economists also said companies were likely to face higher costs for the raw goods needed for production in Katrina’s wake but that a key question was whether those increases would get passed to consumers.

“Inflation is very contained; it’s not going anywhere,” said Robert Brusca, chief economist at Fact and Opinion Economics in New York.

Economists expect the hurricane to cut U.S. economic growth in the second half of the year by 0.5 percentage point to 1 percentage point, keeping growth closer to a 3% annual pace than the nearly 4% and above-trend rate many had expected before the storm.

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