Wholesale prices flat, as inflation pressures ease - Source Associated Press - September 15,2011

Wholesale prices flat, as inflation pressures ease By CHRISTOPHER S. RUGABER AP Economics Writer Posted: 09/14/2011 06:35:22 AM MDT Updated: 09/14/2011 07:15:19 AM MDT WASHINGTON—Companies paid the same amount for wholesale goods last month as a drop in energy prices offset higher food costs. Excluding the volatile food and energy categories, core wholesale prices edged up 0.1 percent, the smallest increase in three months. The figures indicate that inflation pressures are easing. The Producer Price Index, which measures price changes before they reach the consumer, was unchanged in August, the Labor Department said Wednesday, after a 0.2 percent rise in July. In the past 12 months, the index has increased 6.5 percent, mostly due to higher gas and food costs. That's the smallest 12-month rise since March, though much bigger than the annual changes late last year. Core prices rose 2.5 percent in the past 12 months, the same pace as July. "It does seem as though wholesale prices have plateaued," said Gregory Daco, U.S. economist at IHS Global Insight. They are likely to remain at roughly the same level or inch down in future months, he said. The leveling off is good for cash-strapped consumers, Daco said, because it puts less pressure on businesses to raise their prices. That could increase consumers' purchasing power. Food prices rose 1.1 percent in August, the largest increase since February. Egg prices jumped nearly 11 percent, the most since April, while processed chicken prices increased 3.7 percent, the most in five years. That likely reflects the higher cost of corn and other grains that are used for animal feed. Processed fruits and vegetables rose 2 percent, the most since February 1990. The core index was pushed up by a jump in tire prices, which rose 1.4 percent, the most in four months. Wholesale gasoline prices, meanwhile, fell 1 percent in August, and home heating oil dropped 1.2 percent. Sharp increases in the prices of oil, food and other commodities pushed up most measures of inflation earlier this year. But now that many commodities are becoming less expensive, inflation pressures are fading. That's taken some of the pressure off the Federal Reserve to keep inflation in check by raising interest rates. Instead, the central bank can keep the short-term rate it controls at nearly zero, in an effort to support economic growth. Oil prices have fallen in recent months as fears have grown that the economy might shrink. That's contributed to lower gas costs. Gas prices averaged $3.63 a gallon nationwide Wednesday, according to AAA. That's down a peak of nearly $4 in May, though still almost a dollar more expensive than a year ago. Food prices, however, may keep rising. The U.S. Department of Agriculture said Monday that an unusually hot summer damaged much of the nation's corn crop. That could drive up food prices broadly because corn is used in everything from animal feed to cereal to soft drinks. Corn fell about 23 cents to $7.23 a bushel Tuesday. That's down from its peak of $7.99 in June, but nearly twice the price paid in the summer of 2010. ---------------------