Wholesale prices fall unexpectedly
Prices of raw materials dip 7.3%
Tom Stundza -- Purchasing, 10/20/2009 1:24:14 PM
Wholesale prices declined an unexpected 0.6% in September mostly because of a 2.4% drop in fuel costs. The prices in raw materials dropped 7.3% last month. Purchasing Magazine's September price index for energy products dropped 3.3%. as the overall index slipped 1.2%.
The decrease in prices paid to factories, farmers and other producers was the second drop in three months for the Labor Department's overall Producer Price Index. Excluding food and fuel, so-called core prices in September declined 0.1%.
Bloomberg says the PPI report is a sign that inflation remains muted and the Federal Reserve has leeway to keep borrowing costs low as the economy slowly recovers.
The Bloomberg story says: "Companies won't be able to pass on higher costs to consumers until demand is more sustained as the economy emerges from the worst recession in seven decades. Citing ‘subdued' inflation, Federal Reserve policy makers pledged last month to keep the benchmark interest rate at a record low for an ‘extended period'."
Economist Ryan Sweet at Moody's Economy.com in West Chester, Pa., agrees in a note to clients that "inflation is not an immediate concern." He adds that "we're probably going to see core inflation continue to soften over the next couple of months" and "this will likely keep the Fed on the sidelines for the foreseeable future."
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