US wholesale prices fell 0.2 percent in October

Updated at: 11/14/2012 10:05 AM
By MARTIN CRUTSINGER

(AP) WASHINGTON - Wholesale prices fell in October as a big drop in gasoline and other energy prices offset a rise in the cost of food.

Wholesale prices dipped 0.2 percent last month, the Labor Department said Wednesday. It was the first decline since May and followed big gains of 1.1 percent in September and 1.7 percent in August, increases that had been driven by spikes in energy.

Energy prices retreated a bit in October, dipping 0.5 percent but food costs were up 0.4 percent as the summer drought continued to put pressure on some food prices.

Core prices, which exclude food and energy, fell 0.2 percent in October, the biggest drop in two years. Over the past year, core prices were up a moderate 2.1 percent, evidence inflation remains under control.

In October, the fall in energy costs included a 2.2 percent drop in gasoline prices, the biggest since July, and a 3.3 percent decline in home heating oil costs.

Gas prices averaged $3.44 a gallon nationwide on Tuesday, down 35 cents from a month ago, according to a survey by AAA’s Fuel Gauge.

The 12-month rise in core prices of 2.1 percent reflected a moderation from the start of the year. Core wholesale prices were up 3.1 percent for the 12 months ending in January.

"Inflationary pressures at the producer level are moderate and have been slowly retreating in recent months," said Stephen Wood, chief economist at Insight Economics.

The rise in food costs was led by an 8.1 percent increase in the price of pork, the biggest spike in four years. The summer drought in the Midwest has driven up food costs include the cost of beef and pork because animal feeds made with corn have increased in price.

The 0.2 percent drop in core prices in October reflected in part big declines in the price of passenger cars and light trucks. Without those declines, core prices would have been unchanged.

Low inflation means consumers have more money to spend, which helps the economy. It also gives the Federal Reserve more room to keep interest rates low in an effort to spur economic growth. If prices were to begin rising rapidly, the central bank might be forced to raise rates in response.

Economists believe that the modest gains in wholesale prices should translate into further moderation in consumer inflation, keeping it close to the Fed’s 2 percent inflation target and allowing the central bank to keep focusing its policy on efforts to boost economic growth and reduce the unemployment rate.

The government will issue its October report on consumer prices on Thursday and economists are also expecting moderation at the retail level because of falling gas prices.

(Copyright 2012 by The Associated Press. All Rights Reserved.)