US wholesale prices fell 0.2 per cent in October, first drop since May, as gas prices retreated

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

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

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

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

Gas prices averaged $3.44 a gallon (91 cents a litre) 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 per cent reflected a moderation from the start of the year. Core wholesale prices were up 3.1 per cent 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 per cent 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 per cent 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 per cent 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.