WASHINGTON – Falling energy prices kept a lid on U.S. wholesale inflation in July after a jump in gasoline boosted prices in June.
The Labor Department reported Wednesday that wholesale prices showed no change last month compared with June, when they rose 0.8 per cent. That was the most in nine months.
Energy costs fell 0.2 per cent, after June’s 2.9 per cent surge. Gasoline prices dropped 0.8 per cent, and natural gas costs slid 3.9 per cent.
Excluding volatile food and energy costs, so-called core prices rose just 0.2 per cent. Core wholesale prices are up 1.2 per cent over the past 12 months, the smallest one-year increase since November 2010.
Tame inflation has helped consumers increase spending this year despite slow income growth and higher taxes.
Aside from sharp swings in gas prices, consumer and wholesale inflation has barely increased in the past year. Overall wholesale prices rose 2.1 per cent in July compared with the previous July.
For July, drug prices rose 1 per cent, the largest gain since a 2.5 per cent rise in January. Drug companies have been introducing price increases in January and July of each year. Food costs were flat in July as a jump in pork prices was offset by a decline in the cost of fresh vegetables.
On Thursday, the government will report on consumer prices for July, and economists estimate that overall and core prices rose just 0.2 per cent.
For the 12 months ending in June, overall consumer prices rose 1.8 per cent and core prices 1.6 per cent.
Those levels are below the Federal Reserve’s 2 per cent target for inflation. At its last meeting in July, the central bank added language to its policy statement to express concern that inflation persistently below 2 per cent could pose risks to the economy.
The Fed announced after the meeting that it planned to keep buying $85 billion a month in bonds to keep downward pressure on long-term interest rates. It also said it planned to keep its key short-term rate near zero, where it’s remained since December 2008 — at least as long as unemployment is above 6.5 per cent.
Chairman Ben Bernanke and other Fed officials have said the central bank could start slowing its bond purchases later this year. Some economists think that could begin after the Fed’s next meeting in September. Most expect the slowdown to be gradual. New bond purchases might not end until mid-2014 — and only then if the unemployment rate has dropped to around 7 per cent.
Unemployment fell in July to 7.4 per cent from 7.6 per cent in June. The July figure was a 4 1/2-year low, but it was still well above the 5 per cent to 6 per cent range that economists associate with a healthy economy.
The combination of modest economic growth and still-high unemployment has kept wages from rising quickly. That’s made it harder for businesses to raise prices.