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WHOLESALE PRICES FELL 0.1 PERCENT IN JUNE
RETAIL SALES DROP FOR 2ND MONTH IN ROW

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RETAIL SALES DROP FOR 2ND MONTH IN ROW

U.S. inflation at the wholesale level fell in June for the first time in one and a half years as prices declined 0.1 percent, the Labor Department said Friday.

And in a further sign of a weaker economy, retail sales fell by 0.4 percent, pushed down by a sharp drop in automobile sales, the Commerce Department said.The decline in the producer price index for finished goods was the first monthly drop since a 0.3 percent decline in December 1987 and followed a sharp 0.9 percent rise in May.

So far this year, the index, which measures prices paid by wholesalers for goods, has risen at a seasonally adjusted 7.6 percent annual rate, up sharply from a 4.0 percent gain in 1988.

The 0.4 percent decline in retail sales compared with a revised 0.1 percent fall in May, the first back-to-back fall since November 1986.

Retailers in June rang up a seasonally adjusted $140.77 billion in sales, the department estimated, with declines in nearly every sector.

Auto sales fell by 2 percent in June, the largest drop since the stock market crash.

The surprising June drop in wholesale prices was unexpected for Wall Street economists who had been looking for prices at the wholesale level to rise by 0.2 percent. The index in June stood at 114.1 against its 1982 base of 100.

Excluding food and energy prices, which have risen sharply this year, producer prices rose 0.7 percent last month, after a 0.5 percent rise in May. Over the past year, this so-called core rate of wholesale inflation has risen 4.8 percent.

Until recently, the Federal Reserve had kept a tight rein on credit to ease inflationary pressures. But in the face of weak economic growth, especially at the manufacturing level, the Fed has begun to ease interest rates slightly, causing several banks to lower prime lending rates to their best business customers.

Economists said the Fed would have even more latitude to lower interest rates and stimulate growth with the new numbers showing an actual decline. Economists keep a watchful eye on prices at the wholesale stage since they flow through to the retail level after several months.

The June decline in retail sales was below Wall Street estimates for zero growth during the month.

Higher interest rates over the past year have forced consumers to cut back on spending.