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Published: Wednesday, 5/19/2010

Wholesale prices off, residential building up


WASHINGTON - Wholesale prices nationwide fell in April, reflecting declines for energy and food, while construction of new homes rose more than expected, according to reports released yesterday.

But a drop in building permits, a gauge of future activity, along with the expiration of a government tax credit for home purchases suggest the construction gains could fade soon.

Wholesale prices edged down 0.1 percent last month, the second decline in the past three months, the Labor Department said. Core inflation, which excludes energy and food, rose 0.2 percent, slightly faster than expected. But over the past year, core prices are up just 1 percent.

For April, food costs dipped by 0.2 percent. The decline was the first in nine months and followed a 2.4 percent surge in March, the largest gain in 26 years. That increase reflected the impact of a winter freeze in Florida that heavily damaged citrus and vegetable crops.

Energy prices fell 0.8 percent in April, with gasoline prices down 2.7 percent.

Economists said the absence of inflation pressures means the Federal Reserve can continue to keep interest rates at record lows to bolster the economic recovery.

In a separate report, the Commerce Department said construction of houses and apartments rose 5.8 percent last month. That was a larger increase than expected and pushed activity to a seasonally adjusted annual rate of 672,000 units, the highest since October, 2008.

However, applications for building permits, a good indicator of future activity, fell 11.5 percent. That was a larger decline than had been expected.

Home sales were helped by low mortgage rates and two government tax credits that expired April 30.

"There is little doubt the housing numbers have been boosted" by the tax credit, wrote Dan Greenhaus, chief economic strategist with Miller Tabak + Co.

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