Originally created 08/14/04

Wholesale prices edge up just 0.1 percent in July

WASHINGTON -- Wholesale prices edged up just 0.1 percent in July as a big drop in food costs offset the biggest increase in energy prices in six months, the government reported Friday.

The small increase in the Labor Department's Producer Price Index last month followed a 0.3 percent decline in June as price pressures at the wholesale level have shown a sharp moderation over the past two months following sizable increases earlier this year.

The small July increase reflected a 1.6 percent decline in food costs, the biggest one-month drop in more than two years, reflecting cheaper costs for beef and dairy products. Food costs had also fallen in June after three months of big increases.

The price moderation last month did not extend to energy, which shot up by 2.3 percent in July, the largest gain since a 4.7 percent rise in January. Energy costs had fallen by 1.6 percent in June. Last month's sharp turnaround reflected higher gasoline costs, which rose by 5.4 percent in July after having posted a 5.2 percent decline in June.

With crude oil prices hitting record levels this week, spiking above the $45 per barrel mark, analysts are predicting that the prices paid by consumers for gasoline and other energy products will be headed higher in coming months.

Democratic presidential nominee Sen. John Kerry has raised the soaring price of energy as a campaign issue, one part of his economic indictment against President Bush.

In remarks prepared for delivery Friday at a campaign stop in Eugene, Ore., Kerry said, "When we have gas prices going through the roof, the Americans I've met don't think we've turned the corner."

The Bush administration counters that the president has an energy plan designed to lower America's dependence on foreign oil but it has been blocked in Congress by Democrats who do not want to expand oil drilling in Alaska.

Meanwhile in another report, the Commerce Department said the U.S. trade deficit surged to an all-time high of $55.8 billion in June. That was up sharply from a revised May deficit of $46.9 billion and was certain to intensify the debate in the presidential campaign over trade policies.

The Kerry campaign contends that Bush's free trade efforts have led to huge trade deficits and cost millions of American manufacturing jobs as more companies move production overseas to low-wage countries.

The surge in energy costs this year has acted as a major drag on growth by forcing consumers to spend more on filling up their gas tanks than on other products. The overall economy, as measured by the gross domestic product, slowed to a growth rate of just 3 percent in the April-June quarter, far below the 4.5 percent pace in the first three months of the year.

In an effort to make sure that inflation does not become a problem, the Federal Reserve raised a key short term interest rate by a quarter point on Tuesday, its second rate increase this year.

Fed officials signaled that further rate increases would occur at a "measured" pace which economists have read as an indication that the Fed will make quarter point moves at its final three meetings of the year in September, November and December.

Federal Reserve Chairman Alan Greenspan told Congress last month that the "soft patch" the economy encountered in the early summer should be short-lived.

However, private economists are worried that the continued rise in energy costs, which act like a tax on consumers, will further depress consumer spending in the months ahead and could jeopardize the economic recovery.


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