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US producer prices tick up 0.1 per cent as gas costs fall, in latest sign of tame inflation

WASHINGTON - Falling gasoline costs lowered the prices that U.S. companies received for their goods and services last month, keeping overall inflation in check.

The producer price index rose 0.1 per cent in July, following a 0.4 per cent gain in June, the Labor Department said Friday. The index measures the cost of goods and services before they reach the consumer.

Wholesale gas prices fell 2.1 per cent, after jumping 6.4 per cent in June. The cost of pharmaceuticals, pickup trucks and rail and truck shipping services rose, while the cost of vegetables, jewelry and natural gas fell.

Excluding the volatile categories of food, energy and retailer and wholesaler profit margins, prices moved up 0.2 per cent.

In the past 12 months, producer prices have risen just 1.7 per cent, slightly below the Federal Reserve's target.

Wholesale prices jumped 0.5 per cent in April, led by a big increase in food costs. That raised concerns among some economists that inflation could accelerate. But price changes since then have been mostly tame.

Consumer prices have tended to track the costs for producers. They rose 0.3 per cent in June, mostly because of higher pump prices. Consumer prices rose 2.1 per cent in June compared with the year prior.

The Fed targets inflation at about 2 per cent as a guard against deflation, which could drag down wages and spark another recession. At the same time, the Fed wants to avoid excessive inflation and protect consumers and the purchasing power of the dollar.

Employers have stepped up hiring this year and consumers are more confident in the economy. But wage growth and spending have been sluggish. The unemployment rate, now at 6.2 per cent, remains elevated compared with levels typical in a healthy economy.

Those trends have made it difficult for businesses to raise prices, because that could chase away customers. Many retailers have reported disappointing sales and profits this year.

Still, low inflation has enabled the Fed to pursue extraordinary measures to boost the economy. It has begun to unwind some of those measures, cutting a monthly bond-buying program to $25 billion, from $85 billion last year.

Those bond purchases had ensured low interest rates that encouraged investors to pour money into the economy.

The Canadian Press


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