Tuesday, August 18, 2009

Producer Prices Cliff Dive in July

Bloomberg reports:

Wholesale prices in the U.S. fell more than forecast in July as energy costs receded, capping the biggest 12-month drop on record and showing inflation will not be an immediate concern for Federal Reserve policy makers.

The 0.9 percent decrease in prices paid to factories, farmers and other producers followed a 1.8 percent gain in June, the Labor Department said today in Washington. Excluding food and fuel, so-called core prices unexpectedly fell 0.1 percent.

A record amount of excess capacity will prevent production bottlenecks from developing, indicating wholesale prices will be slow to recover even as the economy improves. A lack of inflation was one reason Fed policy makers last week reiterated a pledge to keep the benchmark interest low for an “extended period.”

“If you have an environment where excess stock remains large and inflation continues to be slow, the Fed will want to keep monetary policy easing,” Michelle Meyer, an economist at Barclays Capital Inc. in New York, said before the report. “The fact you have so much slack in the economy puts downward pressure on prices.”



Source: BLS