- The Washington Times - Tuesday, August 15, 2006


Falling food prices helped to keep inflation at the wholesale level contained in July. But a relentless rise in energy prices was expected to make the relief short-lived.

The Labor Department reported yesterday that wholesale prices increased a slight 0.1 percent in July, far below the 0.5 percent jump in June. The improvement reflected a retreat in food prices, which had surged by 1.4 percent in June only to decline by 0.3 percent in July.

Core wholesale inflation, which excludes energy and food, was also well-behaved in July, posting an unexpected decline of 0.3 percent, the first drop in nine months.

But private economists noted that energy prices were up sharply and the decline in the core rate of inflation was heavily influenced by special factors, such as a weakness in light-truck sales and continued declines in computer prices.

In other economic news yesterday:

• Home sales fell in 28 states and the District in the April-June quarter of this year, compared with the same period a year ago.

• A survey of sentiment among the nation’s home builders dropped in August by seven points to a reading of 32, the lowest level in more than 15 years. It was the seventh consecutive monthly decline and was blamed on rising builder worries about record levels of unsold homes and increased cancellations of purchase contracts.

Federal Reserve policy-makers broke a two-year string of interest rate increases last week, saying they believed that a slowing economy would help restrain inflation pressures.

But many private economists are worried that the continued rise in energy costs could force the Fed to resume rate increases in coming months.

The 0.1 percent rise in the government’s Producer Price Index represented the smallest amount of inflation since wholesale prices actually fell by 1.2 percent in February.

Price pressures have been accelerating this year as energy costs have soared, reflecting rising tensions in the Middle East and tight supplies because of increased demand from emerging economies such as China.

Crude oil reached a record high price last month, closing at $77.03 a barrel in New York trading on July 14.

The increases in crude prices have pushed gasoline costs above $3 per gallon in many parts of the country, increases that have spurred voter unhappiness with the Bush administration’s economic policies.

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