Wholesale prices drop in July

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conomics Writer

WASHINGTON — Wholesale prices dropped sharply in July, and over the past 12 months fell by the largest amount in more than six decades.
The Labor Department said Tuesday that wholesale prices dropped 0.9 percent last month. That’s triple the decline economists had expected and was driven by big decreases in both energy and food costs. Over the past 12 months, the prices of goods before they reach store shelves fell 6.8 percent.
Core inflation, which excludes energy and food, also was well-behaved. It dropped 0.1 percent in July, better than 0.1 percent gain economists expected.
With inflation under control, some may worry about a dangerous bout of falling prices that can also drive wages down, but most economists said deflation remains a remote threat. The last period of deflation in the U.S. occurred in the 1930s during the Great Depression.
“Deflation-worriers will find some cause for concern in the general picture, though the broad pattern remains one of gently oscillating monthly price changes, rather than sustained tip into decline,” Pierre Ellis, senior economist at Decision Economics, wrote in a note to clients.
Meanwhile, housing starts and applications for future projects both dipped unexpectedly last month, a sign that the building industry’s recovery from the prolonged housing slump is likely to be bumpy and gradual.
The Commerce Department said new construction fell 1 percent in July to a seasonally adjusted annual rate of 581,000 units. Economists expected a pace of 600,000 units. Applications for building permits, an indicator of future activity, fell 1.8 percent to an annual rate of 560,000 units, also below economists’ estimates of 580,000 units.
The Federal Reserve believes inflation will remain subdued for some time as the country struggles to emerge from the worst recession since World War II.