Money Wise

Inflation Rate is Holding for the Last 10 Months


Wholesale price index falls 1.4%,

most in 10 months

WASHINGTON — Wholesale prices fell in August by the largest amount in 10 months,
reflecting a plunge in the price of gasoline and other energy products and the fourth
straight month of falling food costs.

The Labor Department said Tuesday that its producer price index fell 1.4% last month,

best showing since a 1.5% fall last October. It was a much bigger decline than the

0.3% drop that had been expected and was led by a 6.6% plunge in energy costs,

biggest drop in more than four years.

Core inflation, which excludes food and energy, was also well under control, rising

just 0.2%. The good price performance should ease concern about inflation and

give the Federal Reserve leeway to cut interest rates to try to fend off a recession.

Fed policymakers are expected to cut a key interest rate at 2:15 p.m. ET Tuesday

for the first time in four years as they try to make sure that a steep slump in

housing and widening credit market problems do not derail the economy.

The 1.4% drop in the Labor Department's producer price index, which measures

inflation pressures before they reach the consumer, more than reversed a 0.6%

jump in wholesale prices in July.


The government will report on consumer prices Wednesday and that report is also

expected to show inflation pressures slowing. Consumer prices rose just 0.1%

in July.

The Fed pushed interest rates up 17 consecutive times over a two-year

period to try to keep inflation from getting out of hand and then left rates

unchanged more than a year to see if its inflation-campaign had succeeded.

But pressure has intensified in recent weeks for the central bank to cut

rates in the wake of a spreading credit crunch that has disrupted financial

markets around the world.

August's 1.4% drop in wholesale prices was the third decline this year

and left wholesale prices rising over the past 12 months by 2.2%. In

2006, core inflation rose 1.1%.

The 6.6% plunge in energy costs was the sharpest decline since an

8% fall in April 2003. It reflected a 13.8% fall in gasoline prices,

biggest one-month drop since last September, and a record 8.5%

fall in residential natural gas prices. Home heating oil costs plummeted 6%.

Economists noted that crude oil prices have in recent days hit record highs

above $80 per barrel, which could reverse the energy declines in coming


Food costs fell 0.2% in August, fourth straight decline.

In August, vegetable prices dropped 6% with declines also in the price

of eggs and pork. Beef prices rose.

Outside of food and energy, the cost of passenger

cars rose 0.6% but the price of light trucks, the category that includes

sport-utility vehicles, fell 0.9% and computer prices were down 3.2%.