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Producer Prices Decline in August

September 11, 2004|From Reuters

U.S. producer prices dropped unexpectedly last month as the cost of gasoline plunged and prices of food and vehicles fell, according to a government report Friday that showed inflation pressures under wraps.

A separate report showed that the nation's trade deficit narrowed more than expected in July as imports declined for the first time in 10 months and exports leaped higher. Still, at $50.1 billion, it was the second-biggest gap on record.

Economists said a slimmer trade gap could boost economic growth in this quarter.

The producer price index, a gauge of prices received by farms, factories and refineries, fell 0.1% in August, the Labor Department said. The core index, which excludes volatile food and energy prices, also dropped 0.1% -- the first decline since February. Economists had expected both figures to be up 0.1%.

Although U.S. crude oil hit a record high near $50 a barrel last month, Friday's data showed that end users were largely buffered. Prices that domestic producers received for crude oil did jump 12.5%, but gasoline prices skidded 5% because supplies remained ample as the summer driving season wound down.

Overall energy prices at the finished-goods level edged up 0.2%, a sharp slowdown from a 2.3% jump in July, as the gasoline price drop partially offset rising costs for other energy products.

Food prices fell 0.2%, the third straight monthly decline after a string of sharp gains in the spring.

The report also showed big drops in prices for cars and light trucks and SUVs, but many economists had expected this to happen as automakers increased sales incentives.

In its report, the Commerce Department said the trade deficit narrowed nearly 9%, the biggest monthly drop in 2 1/2 years. Analysts had expected the deficit to narrow but not so sharply.

"It has been such an ugly number for years now that it is almost as if it doesn't matter in a way," said Robert MacIntosh, chief economist at Eaton Vance Management in Boston. "Although it did come in a little better than expected, it is still an ugly number."

Imports fell 1.4% to $146 billion, with the import bill helped by a drop in oil import prices to $33.28 a barrel after eight consecutive monthly increases.

Exports rose 3% to $95.9 billion, just $1 billion shy of the record set in May. The rebound included a rise in civilian plane sales, which had fallen sharply in June and helped push the trade deficit to a record that month.

Exports of autos and auto parts hit a record in July.

Meanwhile, the politically sensitive U.S. trade deficit with China set another monthly record at $14.9 billion as imports increased 3.7% and exports fell 2.6%.

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