Wholesale prices dip 0.9% in August

Retreat in energy costs is the key factor

By Tom Stundza -- Purchasing, 9/17/2008 8:41:00 AM

A sharp drop in energy costs pulled wholesale prices down 0.9% in August, a possible sign of easing inflation pressures. The Labor Department says the producer price index (PPI) showed its first decline since the start of the year and the sharpest drop since October 2006.

However, the so-called core index, which excludes food an energy -- sometimes seen as a better indication of inflation going forward -- rose 0.2% for the month. Still, the drop in PPI came after a sharp 1.2% surge in July and 1.8% in June. Leading the downturn was energy -- with a 4.6% decline in August after rising 3.1% in July.

Over the past 12 months, wholesale prices are up a strong 9.6%, or 3.6% excluding food and energy. But now, Sal Guatieri at BMO Capital Markets writes to client: "Softer commodity prices, a firmer greenback and weak demand likely will drive producer and consumer inflation lower in the months ahead.”