Bloomberg News

U.S. Wholesale Prices Fell 0.4% in June on Cheaper Energy

July 14, 2011

(Updates with economist quote in fourth paragraph.)

July 14 (Bloomberg) -- U.S. wholesale costs dropped more than forecast in June, restrained by the biggest decrease in energy prices in two years.

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

The rise in commodities prices this year, which prompted some U.S. 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.

“Monetary policy makers will need to take rising core inflation into account even if growth should come below their modest expectations,” said Dana Saporta, a U.S. economist at Credit Suisse Holdings USA Inc. in New York.

Other reports today showed that first-time claims for unemployment benefits fell more than forecast last week to the lowest level since April, and retail sales stagnated in June.

The Standard & Poor’s 500 Index rose 0.2 percent to 1,320.72 at 9:39 a.m. in New York. Treasury securities fell, sending the yield on the benchmark 10-year note up to 2.92 percent from 2.88 percent late yesterday.

Economists’ Estimates

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

Wholesale prices excluding volatile food and energy costs were projected to rise 0.2 percent from the prior month, the Bloomberg survey showed. The so-called core index rose 0.2 percent 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.

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

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

Fuel Costs

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

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

The cost of food increased 0.6 percent, led by a 12 percent gain in fruits and melons, after a 1.4 percent 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.

Expenses for intermediate goods were unchanged percent from the prior month, while prices of crude goods decreased 0.6 percent. Crude goods were up 26 percent 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. 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.”

Beating Estimates

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.

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.

Oil Stabilizes

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

The Fed’s preferred price gauge, which excludes food and fuel, rose 1.2 percent in May from a year earlier. Fed policy makers aim for long-run overall inflation of 1.7 percent to 2 percent, 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 U.S. dropped in June for the first time in a year, data showed this week. Costs advanced 13.6 percent from June 2010, the biggest 12-month increase since August 2008.

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

--Editors: Vince Golle, Christopher Wellisz

To contact the reporter on this story: Alex Kowalski in Washington at

To contact the editor responsible for this story: Christopher Wellisz at

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