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Wholesale prices flat
PPI, closely watched measure of wholesale inflation, unchanged following November's decline.
January 15, 2003: 9:05 AM EST

NEW YORK (CNN/Money) - Wholesale prices in the United States were stagnant in December, the government said Wednesday, as inflation remained a distant threat in an economy struggling to gain traction.

The Labor Department said its producer price index (PPI), a measure of wholesale prices, was unchanged in December after falling a revised 0.4 percent in November. Economists, on average, expected prices to rise 0.3 percent, according to Briefing.com.

Excluding volatile food and energy prices, "core" PPI fell 0.3 percent after falling a revised 0.3 percent in November. Economists, on average, expected core PPI to rise 0.1 percent.

Separately, the Commerce Department said businesses added to their inventories by 0.2 percent in November, following October's revised gain of 0.1 percent. Economists, on average, expected inventories to grow 0.1 percent.

U.S. stock market futures were little changed by the reports, pointing to a positive opening on Wall Street. Treasury bond prices were mixed.

November's PPI report helped fuel talk of deflation, an unstoppable drop in prices that makes life easier for consumers -- at first -- but miserable for businesses, who can't raise prices to keep up with the natural increase in the wages they pay.

In order to keep costs in line, businesses cut jobs, which shrinks demand, which makes prices fall again. It's a vicious cycle, one that has deviled Japan, the world's second-largest economy, for years.

Federal Reserve Chairman Alan Greenspan and many other economists have said they doubt the U.S. economy, the world's largest, is at risk of deflation.

There's no question, however, that businesses lack real pricing power, which is forcing them to keep their costs in check and discouraging them from hiring more workers.

Wholesale prices rose just 1.2 percent in 2002, but much of that gain was due to an 11.9 percent rise in energy prices. Core PPI, on the other hand, actually fell 0.4 percent in 2002, the worst reading since the Labor Department started keeping track in 1973.

In December's PPI report, a 2 percent drop in passenger car prices and a 1.6 percent drop in light truck prices offset a 0.9 percent gain in energy prices.

The figures represent the extent to which automakers have bent over backward to drive sales, offering aggressive incentives such as zero-percent financing.  Top of page




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