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Wholesale prices plummet .4% — biggest fall in 2 years

SHARE Wholesale prices plummet .4% — biggest fall in 2 years

WASHINGTON — Prices at the wholesale level plunged 0.4 percent in June as record declines in residential electricity and natural gas prices and a big drop in gasoline costs gave the country the best performance on wholesale inflation in more than two years.

The Labor Department reported that the drop in its produce price index, which measures price pressures before they reach the consumer, was the first decline since last August and the biggest drop since a 0.5 percent fall in February 1999.

Analysts had been expecting that inflation would moderate after steep increases earlier this year driven by a big jump in energy prices. They also said the sharp slowdown in economic activity was helping to ease inflationary pressures as wage demands soften with the rising jobless rate.

Meanwhile, a second report Friday showed that retail sales rose 0.2 percent in June, pushed up by a strong 1.5 percent surge in sales of new cars. While the overall number was slightly weaker than analysts had been expecting, the government revised its estimate for May sales sharply higher to 0.4 percent, rather than the original estimate of a much smaller 0.1 percent gain.

Beginning last summer, U.S. economic growth has slowed dramatically, with many analysts believing that growth in the just completed April-June quarter will come in at a weak annual rate of 0.5 percent, even worse than the 1.2 percent growth recorded in the first three months of the year.

Still, economists believe consumers will keep the economy out of a full-blown recession with their spending expected to increase in coming months, reflecting the boost provided by lower interest rates and the big tax cut passed by Congress.

The Federal Reserve has cut interest rates six times so far this year, its most aggressive credit easing in the next two decades, in an effort to make sure that the U.S. economy does not tip into recession.