Washington - Asia's economic crisis put a damper on US wholesale inflation in June as the government reported prices paid to producers fell for the first time in three months.
The Labor Department's Producer Price Index eased 0.1% last month following a 0.2% rise in May.
Plummeting energy prices led the PPI decline but there was also weakness in key components such as heavy equipment and other industrial supplies.
"The bottom line is that prices in the industrial sector remain extremely benign," said John Williams, economist at Bankers Trust. "There is ample industrial capacity in the United States. To the degree there is an inflation problem, it's going to come from the service sector, not the industrial sector."
Although June's decline was the first since March, it was the fourth PPI drop so far in 1998 and it contributed to a 0.8 decrease in the index over the past 12 months.
Economists have linked a trend of weak goods-sector prices to slumping worldwide demand for oil and other commodities because of a recession in Asia.
June's PPI decrease was unexpected. US economists in a Reuters survey had forecast an unchanged reading.
But some economists cited some concerns about a 0.2% rise in the "core" PPI, which excludes the volatile food and energy costs. The rise, which exceeded economists' forecasts for a 0.1% gain, unsettled the bond market.
At midday, the benchmark 30-year US Treasury bond dipped 3/32 of a point, or almost 94 cents per $1,000 face value. The yield, which moves in the opposite direction of the price, edged up to 5.62% from 5.61%.
June was the third straight month the closely watched core index core PPI increased by 0.2%.
Special factors, such as a spike in prescription drugs, were blamed for a big portion of the June gain.
Still, Lynn Reaser, economist at Nationsbank, said there may be hints that companies are testing the waters to see if they are able to pass along the rising costs of paying their staff. Such costs have risen because of low unemployment.
"Companies may want to see if there are segments of the economy with strong enough demand that the price increases will be accepted," Reaser said.
Despite the gain in the core PPI, most economists were confident the data provided no new ammunition to trigger an interest-rate rise by the Federal Reserve. Food costs edged up 0.1% last month as lower prices for beef, seafood, vegetables and fruits offset rising costs for pork. Prices of capital equipment, such as heavy machinery, were flat.
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