Producer prices drop for first time in 2007

WASHINGTON – Led by decreases in prices paid for fuel and food, the cost that U.S. producers were paid for goods fell 0.2 percent in June, according to today’s report by the Labor Department. The decrease followed a 0.9-percent increase in producer prices in May and contradicted a projected 0.2-percent increase made in a survey of 72 economists conducted by Bloomberg News.
Fuel prices dropped 1.1 percent, led by a 3.9-percent decrease in gasoline costs. Food prices fell 0.8 percent, as the cost of eggs, fresh fruit and meats all dropped. Producer prices, along with prices for imported goods and consumer prices, are the three monthly benchmark sets of statistics reported by the government. The Labor Department reported July 13 that prices of imported goods increased 1 percent in June, driven by higher oil and industrial supply costs.
Consumer prices will be reported tomorrow, and the median forecast from a Bloomberg survey projects a 0.1-percent increase for June, following a 0.7-percent increase in May. The survey also predicts that the rate of core inflation, which excludes food and energy, will be 0.2 percent, compared with May’s core rate increase of 0.1 percent.
Despite the drop in food and fuel prices, the core price level increased 0.3 percent in June, reflecting a rise in automobile prices, according to Bloomberg. “Core producer prices for consumer goods have remained surprisingly moderate despite upstream pressures,” Sal Guatieri, senior economist at BMO Capital Markets in Toronto, said before the report. Still, “the Fed will retain its inflation bias” until core prices come down, he said.
The figures, coming a day before Federal Reserve Chairman Ben S. Bernanke testifies to Congress on the economy, would be welcome news for policy makers. Central bankers last month said a pickup in inflation remained the biggest risk and more evidence of a slowdown in prices would be needed before concern eased.