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VOL. 125 | NO. 160 | Wednesday, August 18, 2010

Wholesale Prices Rise on Higher Food Costs


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WASHINGTON (AP) – Wholesale prices rose last month for the first time since March on higher costs for food, autos, pickup trucks and pharmaceuticals.

Still, the increases were modest and show that the weak economy isn't spurring significant price rises.

The Labor Department said Tuesday that the Producer Price Index, which measures price changes before they reach the consumer, rose by 0.2 percent in July, after three months of declines. The rise matched Wall Street economists' forecasts, according to a survey by Thomson Reuters.

Excluding volatile food and energy costs, so-called "core" producer prices rose by 0.3 percent in July, the ninth straight increase. Core prices have risen by 1.5 percent in the past year.

The report comes after the Labor Department said Friday that consumer prices also rose in July for the first time in four months. The two reports have eased fears that the economy is about to experience deflation, a widespread and painful drop in prices and wages. The U.S.'s last serious case of deflation was during the Great Depression.

Concerns about deflation grew after both consumer and producer prices fell for three straight months. Most economists don't believe deflation will happen. But they are watching the government's price indexes closely for any signs of it.

At the same time, economists said Tuesday's report shows that inflation is unlikely to accelerate anytime soon. The Producer Price Index illustrates the price changes companies face and can give a rough indication of what consumers will confront in the coming months.

"We ... anticipate that consumer price inflation will ... remain quite low over the year ahead," Ryan Wang, an economist at HSBC Securities, wrote in a note to clients.

Over the past year, producer prices have risen by 4.2 percent, above June's figure but down from this spring, when the index increased by more than 5 percent in March, April and May.

That's a bigger increase than consumer prices, which rose by only 1.2 percent in the past year. That shows companies are reluctant to pass on their higher costs to consumers, who are already reluctant to spend due to high unemployment, tight credit and weak wage growth.

One big driver in higher producer prices was fresh and dry vegetables, which jumped in price by 9.8 percent, the most since March. Peas jumped by almost 81 percent, the most since October 2007. Tomatoes, which have been volatile for much of this year, soared by 68.6 percent, also the largest increase since March.

Egg prices rose in July by 19.4 percent, the biggest jump since April 2009.

Another big driver of the higher index was a 1.5 percent rise in the price of pickup trucks, SUVs, minivans and cargo vans. That was the largest increase since January.

Pharmaceutical costs, meanwhile, rose by 0.7 percent.

Tame inflation allows the Federal Reserve to keep the key interest rate it controls at a record low of nearly zero percent in an effort to bolster economic growth. The Fed usually fights rising inflation by raising rates.

Gas and other energy prices fell last month, the department said. That contrasts with Friday's report on consumer prices, which were driven up partly by a sharp increase in gas and other energy costs.

The contrast is largely a result of the different things the two indexes measure, a Labor Department analyst said. Prices at the gas pump rose in July, according to the consumer price index, but refiners appear to have reduced their prices at the wholesale level.

Copyright 2010 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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