Wholesale prices drop for second month

updated 10:03 a.m. ET Oct. 15, 2008

WASHINGTON - Wholesale prices fell for the second straight month in September, driven by a sharp drop in energy costs, the Labor Department said Wednesday.

The department said the producer price index, which measures inflation pressures before they reach the consumer, fell 0.4 percent in September. That decline matched analysts’ expectations.

Core wholesale prices, which exclude volatile food and energy costs, rose by 0.4 percent, above analysts’ expectations of a 0.2 percent increase.

The decline in wholesale prices indicates that recent increases in consumer inflation will likely slow, a bit of good news for the economy. Lower inflation makes it easier for the Federal Reserve to cut its target interest rate to stimulate economic growth. Many economists expect the Fed to cut rates at its Oct. 28 meeting, if not before.

Wholesale prices rose sharply for three months this summer, as oil prices rose to a record level near $147 a barrel in July and prices of agricultural commodities, such as corn and soybeans, also soared.

But those trends have reversed in recent months as the economy has slowed amid the financial crisis. Oil has dropped to below $80 a barrel and the price of corn is down almost 50 percent from its mid-summer high.

Some of the drop in wholesale prices already has been passed onto consumers. The consumer price index fell 0.1 percent in August, the Labor Department said last month. That was down from a 0.8 increase in July, when consumer prices were 5.6 percent higher than a year ago — the largest jump in 17 years.

But consumers may not have seen similar relief in September. The CPI for last month, which will be released Thursday, is expected to increase by 0.1 percent.

The drop in energy prices has hurt the shares of oil companies. Exxon Mobil Corp. shares closed Tuesday at $72.46 and Chevron Corp. finished at $68.54, both down from prices above $90 a share this spring.

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