Wholesale prices in US fell 0.4% in June

US wholesale costs dropped more than forecast in June, restrained by the biggest decrease in energy prices in two years.

The 0.4 per cent decline in the producer-price index followed a 0.2 per cent gain in May, Labor Department figures showed today in Washington. The median forecast in a Bloomberg News survey called for a 0.2 per cent drop in June. The so-called core measure, which excludes volatile food and energy costs, increased 0.3 per cent, more than projected.

The rise in commodities prices this year, which prompted some US companies to pass them along to customers, is starting to ease. Gains earlier this year in raw materials have created tension among Federal Reserve policy makers between those who view the gains as temporary and those who project it will lead to faster inflation.

“We’ve gotten a little bit of reprieve from energy prices, which will go a long way in pulling down the headline number,” Michael Gregory, a senior economist at BMO Capital Markets in Toronto, said before the report. “Core inflation has been humming along on the producer side.”

Estimates for producer prices were based on forecasts from 75 economists. Projections ranged from declines of 0.2 per cent to increases of 0.3 per cent.

Wholesale prices excluding volatile food and energy costs were projected to rise 0.2 per cent from the prior month, the Bloomberg survey showed. The so-called core index rose 0.2 per cent in May. Almost half the increase in the June core index from a month earlier was linked to the biggest gain in prices for light motor trucks since November 2009, the Labor Department said.

YEAR AGO
Compared with a year earlier, companies paid 7 per cent more for goods last month after a 7.3 per cent rise in May.

Core wholesale prices climbed 2.4 per cent in the 12 months ended in June, the biggest gain since July 2009.

Fuel costs dropped 2.8 per cent, the most since July 2009, as gasoline prices fell 4.7 per cent, today’s report showed. Residential electric prices fell by a record 2 per cent in June.

Companies were charged 1.6 per cent more for light motor trucks and 1.7 per cent more for plastics, the most since July 2009. Prices for passenger cars rose 0.2 per cent.

The cost of food increased 0.6 per cent, led by a 12 per cent gain in fruits and melons, after a 1.4 per cent drop in May.

Producer prices are calculated based on costs on the Tuesday of the week containing the 13th of the month, which may influence month-to-month changes.

INTERMEDIATE GOODS
Expenses for intermediate goods were unchanged per cent from the prior month, while prices of crude goods decreased 0.6 per cent. Crude goods were up 26 per cent from a year earlier.

“We’re operating under the assumption that prices are going to continue to go up next season, and they’re going to go up the next season after that,” Blake Krueger, chief executive officer of shoemaker Wolverine World Wide Inc (WWW) said on a July 12 call with analysts. “We’re in an environment now of almost continual price increases season on season, year-on-year.”

The Rockford, Michigan-based-company, whose brands include Hush Puppies and Merrell, reported second-quarter profit that beat the average analyst estimate by the smallest percentage since the fourth quarter of 2009.

Higher-priced cotton will “work its way through the supply chain,” according to Richard Noll, chairman and chief executive officer of Hanesbrands Inc, maker of Hanes underwear and the Wonder Bra. “I don’t see this big spike up and this drop down,” he said during a June 21 conference call.

FEDERAL RESERVE
Central bankers were divided on whether the economy needed additional stimulus last month, minutes of the central bank’s June 21-22 meeting showed yesterday. Some members said a further slowdown in growth would signal a need for additional support, while others said the growing risk of inflation would require withdrawing stimulus sooner than currently anticipated.

A day after the minutes were released, Fed Chair Bernanke told Congress stabilisation of oil prices and other commodities along with slack in the labour market indicate inflation will moderate.

The Fed’s preferred price gauge, which excludes food and fuel, rose 1.2 per cent in May from a year earlier. Fed policy makers aim for long-run overall inflation of 1.7 per cent to 2 per cent, according to their June forecast.

Producer prices are one of three monthly inflation gauges reported by the Labor Department. Prices of goods imported into the US dropped in June for the first time in a year, data showed this week. Costs advanced 13.6 per cent from June 2010, the biggest 12-month increase since August 2008.

Consumer prices, the broadest of the three measures, fell 0.1 per cent in June and the core index advanced 0.2 per cent, according to the median forecasts of economists surveyed by Bloomberg before a Labor Department report tomorrow.