Wholesale Prices Plunge 0.9%

WASHINGTON – Wholesale prices plunged by 0.9 percent in July, the best inflation performance in eight years as the costs of gasoline and other energy products posted big declines.

The better-than-expected showing in the producer price index, which measures price pressures before they reach store shelves, came on top of a 0.4 percent drop in wholesale prices registered in June, the Labor Department reported Friday.

Many economists were predicting wholesale prices would fall by 0.3 percent last month. The 0.9 percent drop marked the best reading on inflation at the wholesale level since a 1 percent decline in August 1993.

Excluding volatile energy and food prices, the "core" rate of inflation edged up by 0.2 percent in July, following a tiny 0.1 percent rise, suggesting that most other prices remained well-behaved .

In an effort to avert the first recession in the United States in 11 years, the Federal Reserve has slashed interest rates six times this year, totaling 2.75 percentage points. One of the reasons the Fed has been able to act so aggressively is because inflation has remained contained.

Economists had been predicting that energy prices would retreat following a sharp run-up last winter that was caused by a shortage of supplies. Still, residents of California continue to face energy problems given the shortage of electrical generating capacity.

Motorists this summer have been getting a break at the gas pump. Gasoline prices have tumbled since peaking on May 18 at $1.76 a gallon as refiners rushed to fill shortages that developed during the spring.

In July, all energy prices fell by 5.8 percent, the biggest drop since August 1989. That followed a 2.5 percent decline in June.

Gasoline prices last month posted a huge 17.7 percent decrease, the best showing in 15 years. Prices for liquefied petroleum gas, such as propane, also fell sharply, dropping 17.8 percent. Home heating oil costs declined by 9.1 percent and residential natural gas prices went down by 4 percent.

But prices for residential electric power jumped 2.2 percent, the biggest increase since January 1991.

After edging up in June by 0.1 percent, food prices declined by 0.6 percent in July, the best performance in two years. Falling prices for beef, chicken, dairy products, vegetables and fruits swamped sharply higher prices for pork.

Elsewhere, prices for cars fell by 0.3 percent, while the cost of light trucks, such as sport utility vehicles, jumped 2.3 percent, the biggest increase since 1987.