"Inflation should gradually pick up, but it's still going to be relatively low. There's still a lot of slack in the economy."
- Scott Brown, chief economist for Raymond James & Associates Inc.
Wholesale prices in the world's largest economy unexpectedly stagnated in July, reflecting the steepest drop in auto costs in four years, report from the Labor Department showed Wednesday. The producer-price index, which is designed to show what companies pay for everything, remained flat last month, after increasing 0.8% in June. Analysts, however expected a 0.4% gain. Core PPI, which excludes volatile food and energy costs, inched higher 0.1% in July, down from the 0.2% increase in June. Lower costs for raw materials are usually performing as a drag on cost pressures at the production stage, and slower growth abroad restrains demand for goods and services.
The Federal Reserve continue to see inflation running below the benchmark 2% even as the economy picks up in the second half of this year. Usually, wholesale prices move in the same direction as core CPI, the more closely watched gauge of consumer prices. On Thursday numbers are likely to show a modest 0.2% growth in consumer prices in July. Such weak figures in producer and consumer prices should give the Fed latitude to prop up the economy with record-low borrowing costs and bond purchases. Bernanke is still counting on inflation to edge closer to their objective by next year.
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