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 user 2005-01-16 at 10:45:00 am Views: 33
  • #11310

    Wholesale Prices Plunge on Energy Costs

    WASHINGTON (Jan.05) – Prices at the wholesale level, helped by the largest drop in energy prices in 20 months, fell by 0.7 percent in December, the government reported Friday.

    The Labor Department said the December plunge in its Producer Price Index, which measures inflation pressures before they reach the consumer, was the biggest drop since April 2003, a month when energy prices also fell substantially.

    For the year, however, wholesale inflation was not as well contained, with prices rising by 4.1 percent. That was the biggest gain since a 5.7 percent surge in 1990 during the lead-up to the first Iraq war. Both years were heavily influenced by a surge in energy costs.

    Excluding food and energy, the so-called core rate of wholesale inflation rose by a more moderate 2.2 percent in 2004 following a 1 percent increase in the core inflation rate in 2003.

    In another report, the Commerce Department said that inventories held by businesses on shelves and backlots rose by 1 percent to a seasonally adjusted $1.275 trillion in November. It was the largest increase since a similar 1 percent rise last July and was a much bigger gain than analysts had been expecting. Business inventories had risen by 0.4 percent in October.

    Business sales rose by a slower 0.4 percent in November following a 1.4 percent jump in October sales.

    The Federal Reserve has been increasing interest rates since last June to make sure inflation does not get out of hand, but it has been doing so at a moderate pace of quarter-point moves, believing it can take its time because inflation outside of energy costs has remained well contained.

    For December, the 0.7 percent drop in wholesale prices was the largest since a 1.5 percent decline in April 2003.

    Last month’s decline was led by a 4 percent plunge in energy prices, also the biggest drop since April 2003. Gasoline prices fell by 11.1 percent with the costs of home heating oil and natural gas also posting declines.

    Food prices at the wholesale level edged up a tiny 0.1 percent in December after rising by 0.4 percent in November. The price moderation reflected a big 26.4 percent drop in the costs of vegetables, the biggest decline since April 2002. That decline helped to offset increases in the cost of beef, eggs, dairy products and fresh fruits.

    Outside of food and energy, prices in December rose by a slight 0.1 percent, following a gain of 0.2 percent in November. This slowdown in core inflation reflected a drop in auto prices, with passenger cars falling by 0.2 percent and the cost of light trucks down by 0.1 percent. Both declines reflected more aggressive discounting by automakers.