Wholesale prices plunge in August, but so do retail sales

WASHINGTON -- Wholesale inflation plunged in August by the largest amount in nearly two years, reflecting a drop in gasoline and other energy prices, but sales at the nation's retailers also unexpectedly dropped in August as shoppers cut back, further evidence the economy is losing traction.

A third report said that consumer confidence soared unexpectedly to an eight-month high in September as lower fuel prices soothed inflation fears and made Americans more hopeful about the economy.

Finally, the Commerce Department said that businesses' supplies of unsold goods in warehouses and stock rooms rose 1.1% in July. Economists were expecting a 0.5% gain. It marked the biggest increase since July 2004. The increase in inventories came as business sales rose by a smaller-than-expected 0.5% in July, down from a 1.7% rise in June.

The Labor Department said Friday that its producer price index, which measures prices before they reach the consumer, fell 0.9% last month, nearly double the 0.5% decline economists expected. The price moderation followed three months in which wholesale costs shot up at levels exceeding 1% a month as energy costs surged.

The 0.9% drop in wholesale prices, largest one-month decline since October 2006, could show up in lower prices for shoppers eventually. The August report on consumer prices will be released Tuesday.

Even with the August decline, wholesale prices the past 12 months are up 9.6%, second biggest 12-month price change in the past 27 years, exceeded only by a 9.8% jump for the 12 months ended in July.

Core inflation, which excludes energy and food, was also well-behaved in August, edging up just 0.2%, in line with expectations and well below July's 0.7% spike.

The 0.2% rise in prices excluding food and energy left core inflation rising 3.6% over the past 12 months, the highest since a 3.7% increase for the 12 months ending in May.

For August, gasoline prices at the wholesale level fell 3.5%, the sharpest drop since a 4.6% decline in April. The price of natural gas fell 5%, home heating oil costs were down 13.6% and the cost of liquefied petroleum gas fell 19.5%.