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Wholesale prices plunge

WASHINGTON - Prices at the wholesale level dropped in February by the largest amount in seven months as a big drop in energy prices offset higher food costs.

The U.S. Labor Department said yesterday that wholesale inflation dropped 0.6 percent in February, much larger than the 0.2 percent decline economists had expected. Excluding food and energy, prices edged up a slight 0.1 percent, in line with expectations.

The deep recession and weak economic rebound are keeping inflation at bay and giving the Federal Reserve leeway to maintain record- low interest rates in an effort to build momentum from stronger economic growth.

While overall wholesale prices have risen 4.4 percent over the past 12 months, core inflation, which excludes energy and food, is up a much more subdued 1 percent over the past year.

Paul Dales, an economist at Capital Economics, said much of the downward pressure on prices stemming from the nation's steep recession has yet to be felt. For that reason, Mr. Dales said the Fed will be able to keep interest rates low for many more months.

The 0.6 percent fall in Labor's Producer Price Index was the biggest decline since a 1.2 percent drop last July. In January, wholesale prices had surged by 1.4 percent, driven higher by rising energy costs.

The report showed food costs rising by 0.4 percent in February, the fifth straight monthly gain. The food increase last month reflected big price gains for fresh vegetables, eggs, and meat.

Outside of food and energy, the price for new cars rose 0.5 percent, the largest advance since June, while the price of carpets and rugs increased 1.6 percent, the biggest advance since last April.

The government will report on consumer prices today.

Economists expect that report to also show subdued inflation with both overall retail prices and core prices rising by just 0.1 percent.

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