Wholesale costs in the US increased in July for the first time in four months, signalling slower growth is not resulting in deflation, or a protracted drop in prices that hurts the economy.
The producer price index increased 0.2 per cent following a 0.5 per cent drop in June. A measure excluding volatile food and energy costs climbed 0.3 per cent, more than projected and the biggest gain since January.
While commodity prices remain above year-earlier levels, the slowing economy gives companies little room to pass on costs and will keep overall prices contained. A lack of inflation or deflation gives Federal Reserve policy makers room to leave the benchmark interest rate near zero to help boost growth.
“We’re going to avoid an outright bout of deflation,” said Russell Price, a senior economist at Ameriprise Financial Inc in Detroit. Stable prices will continue “helping the Federal Reserve maintain a key focus on growth.”
Economists forecast producer prices would rise 0.2 per cent, according to the median of 75 projections in a Bloomberg News survey. Estimates ranged from a 0.2 per cent decrease to an increase of 0.6 per cent.
Work began on fewer homes than forecast in July and building permits fell to the lowest level in more than a year, indicating little evidence of a rebound in US construction following an expired tax credit, another report showed.
Housing starts
Housing starts totalled 546,000 at an annual rate last month, less than the 560,000 median estimate of economists surveyed by Bloomberg News and up 1.7 per cent from June, Commerce Department figures showed. Building permits dropped 3.1 per cent to a 565,000 pace.
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Stock-futures held earlier gains and Treasuries remained lower after the reports. The contract on the Standard & Poor’s 500 Index rose 0.8 per cent to 1,085.5 at 8:41 am in New York. The yield on the benchmark 10-year note climbed to 2.61 per cent from 2.56 per cent late yesterday.
Excluding food and energy, producer prices were projected to increase 0.1 per cent, according to the Bloomberg survey. Almost half of last month’s increase in core prices was due to a 1.5 per cent jump in the cost of light trucks like SUVs and pickups, the Labor Department said. Rising prices for pharmaceuticals and automobiles also contributed to the gain.
Compared with a year earlier, companies paid 4.2 per cent more for goods in July after rising 2.8 per cent in June.
US household debt
US household debt fell 1.5 per cent in the second quarter as consumers, facing an unemployment rate near a 26-year high, reduced mortgages and credit-card accounts, according to the Federal Reserve Bank of New York.
Respondents to a quarterly survey of consumers conducted by the New York Fed for the first time showed total consumer indebtedness was $11.7 trillion at the end of June, down 6.5 per cent from its peak in the third quarter of 2008. Household delinquency rates declined in the second quarter.