970827 Producer Prices Down for 7th Straight Month
August 13, 1997
Wholesale prices dropped unexpectedly for a record seventh month in a row in July, the government said Wednesday in a report offering more proof the economy can grow strongly without producing inflation.
The Labor Department said the 0.1 percent decline in its July Producer Price Index followed an identical drop in June. Without the volatile food and energy components, wholesale prices also fell by 0.1 percent last month.
Wall Street analysts surveyed by Reuters had expected prices to rise by 0.1 percent last month.
The news, along with a separate report showing July retail sales up Smoderately, sparked a rally in the U.S. Treasury bond market, which had slumped in previous sessions on fears of higher interest rates. The benchmark 30-year bond soared 1-9/32 of a point, or $12.81 per $1,000 face value, and its yield, which moves in the opposite direction, fell to 6.57 percent from 6.67 on Tuesday.
"We have had seven consecutive months ... of declines in the Producer Price Index. This is unprecedented in U.S. economic history," said Thomas Carpenter, chief economist and managing director at A.S.B. Capital Management. "What this means from the (Federal Reserve) standpoint is that it's virtually impossible to increase the level of fed funds on Aug. 19."
The Federal Reserve's policy-making Federal Open Market Committee meets next Tuesday to consider whether to raise interest rates to keep inflation in check.
The July drop was paced in part by a decline of 0.2 percent in food prices. Prices for beef, veal, fish and fresh fruit all posted declines. Egg prices tumbled by 21.7 percent, the biggest drop since November 1995.
Despite the overall decline in food prices, vegetable, poultry and pork prices all increased, the department said.
Energy costs inched up by 0.1 percent in July after rising by 0.7 percent the month earlier. Gasoline prices, however, posted a drop of 1.0 percent, the report said.
It also showed little evidence that inflation may be gaining. Overall prices of intermediate goods, which are used to make finished wholesale products, were down 0.2 percent in July. Prices of crude goods, materials used at the beginning of the production process, fell by 0.1 percent.
"It's very impressive. You don't see any inflation in the pipeline from this series if you look at intermediate goods," said Cary Leahey, chief u.s. economist at High Frequency Economics.
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