Washington, DC, Dec. 12--Wholesale prices retreated by 0.3% in November, pulled down by falling costs for gasoline, beef and cars, suggesting that the economy's resurgence isn't fanning inflation.
The decline in the Producer Price Index, which measures prices before they reach store shelves, came after prices rose by 0.8% in October, the Labor Department reported Friday. That jump had unsettled some analysts who worried whether the seeds of inflation were being planted and could take root down the road.
Economists were expecting wholesale prices to calm down in November after October's big increase. But they were forecasting a tiny, 0.1% rise.
The 0.3% drop marked the first decline in wholesale prices since May.
"There is no inflation threat to the current economic rebound. None whatsoever," said Mark Zandi, chief economist at Economy.com.
Excluding energy and food prices, which can swing widely from month to month, core wholesale prices dipped by 0.1% in November, down from a 0.5% advance in October. Analysts were expecting core prices for last month to be flat.
In another report, the Commerce Department said the trade deficit soared to $41.77 billion in October. Shoppers preference for imports hit a record high, offsetting a sizable gain in exports, including the best showing for sales of farm products in seven years. The October trade imbalance was up 1% from a September deficit of $41.34 billion and was the biggest deficit number in seven months.
Because inflation has been tame, the Federal Reserve, at its last regularly scheduled meeting of the year Tuesday, held a key short-term interest rate at a 45-year low of 1% and suggested it could stay there for some time.
Fed policy-makers also said the dangerous prospect that inflation could move lower was less of a concern than it has been. "The probability of an unwelcome fall in inflation has diminished in recent months and now appears almost equal to that of a rise in inflation," they said.
That marked a noteworthy change from recent months where Fed policy-makers identified the remote threat of deflation, a widespread and prolonged price decline, as a risk that they must be on guard against because of its potential to wreck the economy.
The worries about deflation should dim as the economy gains traction, analysts say.
The economy grew at a scorching 8.2% annual rate in the third quarter, the hottest pace in nearly two decades. Analysts believed the economy slowed to a 4% growth rate in the October-to-December quarter, which would still be considered a healthy pace.
Still, in November price declines were fairly widespread.
"Looking at this you would think deflation is a real threat, but it is not. The decline in the PPI belies some measurable improvement in businesses' pricing power," said Zandi, who believed Fed members were correct Tuesday in saying there was a receding risk of inflation moving lower. "Deflation risks have all but vanished," he said.
Energy prices fell by 1.2% last month, after dipping by 0.1% in October. Gasoline prices in November dropped by 4.8%, home heating oil fell by 1.6% and residential natural gas prices went down by 1.1%.
Food prices declined by 0.3% last month, compared with a 2.2% jump in October. The decline last month in part reflected a 4.7% drop in the price of beef and veal.
Elsewhere in the report: car prices dropped by 0.8% in November and communications equipment fell by 0.4%.
The current economic climate can make it difficult for producers to raise prices, which is a benefit for consumers, but can squeeze producers' profit margins.
