US core producer price inflation softens

US core producer price inflation softens
By Eoin Callan in Washington
Copyright The Financial Times Limited 2007
Published: August 14 2007 15:02 | Last updated: August 14 2007 15:02


The US economy appeared to be gaining strength as global demand for US exports rose to a record high, while the prices of wholesale goods cooled, according to figures which contained positive signals for growth and inflation.

The US trade deficit narrowed unexpectedly by 1.7 per cent to $58.1bn in June from $59.2n, the Commerce Department said on Tuesday. The politically-sensitive imbalance with China grew.

Core producer prices excluding volatile food and fuel prices rose 0.1 per cent, the smallest gain in three months and less than expected.

The cooling in core prices is likely to add to calls from Wall Street for the Federal Reserve to cut interest rates and help alleviate an international credit crisis that has shaken financial markets in recent days.

Policymakers have maintained a hawkish stance on inflation despite mounting risks to growth from a collapse in the subprime mortgage market and an increase in the cost of borrowing for some households and companies.

Over the last 12 months, core producer prices rose 2.3 per cent, compared to economists’ forecast of 2.5 per cent.

But economists said elevated energy costs would remain an important source of inflationary pressure, and overall prices rose 4 per cent from a year ago.

The price of gasoline rose 3.2 per cent, and natural gas costs rose 2.7 per cent.

Prices for raw materials rose 1.2 per cent, following a 0.3 per cent gain in June.

On Wednesday, the Labor Department will publish consumer prices, which are forecast to show core inflation steady at 0.2 per cent, according to a Bloomberg survey.

Economists said a weaker dollar and faster growth in Asia and Europe was also increasing demand for US goods.

Figures showed exports rose 1.5 percent to $134.5bn in June, led by shipments of semiconductors and autos.

The improvement in exports outpaced a rise in imports of 0.5 per cent rise to $192.7bn, the highest ever.