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News > Economy
U.S. producer prices drop
August 10, 2001: 8:57 a.m. ET

PPI falls more than expected in July, as inflation risk remains low
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NEW YORK (CNNfn) - Wholesale prices in the United States fell in July, posting their biggest decline in eight years, the government said Friday, indicating inflation pressures are still low in the world's largest economy.

The Producer Price Index (PPI) fell 0.9 percent last month after June's 0.4 percent decline, the Labor Department reported. It was the biggest drop in PPI since August 1993, and Wall Street economists surveyed by Briefing.com had forecast the PPI would fall 0.3 percent.

"There's no inflation threat out there," Maureen Allyn, chief economist with Zurich Scudder Investments, told CNNfn's Before Hours program.

"Core" PPI, which excludes volatile food and energy prices, rose 0.2 percent after a 0.1-percent gain in June. Economists expected core PPI to rise 0.1 percent.

Following the news, U.S. stock futures were slightly lower, while U.S. Treasury bond prices rose.

Click here for CNNfn.com's economic calendar

The U.S. economy has been in a slowdown for about a year, with businesses curtailing spending and cutting hundreds of thousands of jobs. In order to keep consumers spending and avoid a recession, the Federal Reserve has slashed its target for short-term interest rates six times this year, from 6.5 percent to 3.75 percent.

But the Fed is also charged with avoiding inflation and has to be careful its aggressive monetary policy doesn't pump too much money into the economy. So far, that hasn't happened.

"This [report] gives the Fed total latitude to do whatever they think is fitting," said Allyn, who thinks the Fed will cut rates again when it meets on Aug. 21 to discuss policy.

Click here for more on the Fed and rates

Leading the decline in prices were energy prices, which fell by 5.8 percent, their biggest decline since August 1989. Gasoline prices fell 17.7 percent, their biggest decline since 1986, and heating oil prices fell 9.1 percent. graphic

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