US producer prices unexpectedly fell in April, led by the biggest drop for food in almost three decades and as sluggish demand held down the cost of goods from clothing to computers.
"It's very tough to raise prices," said Howard Bernick, chief executive of Alberto-Culver Co, the largest maker of beauty-salon products. Retailers "don't want to accept that."
The 0.2 percent drop in the index of prices paid to factories, farmers and other suppliers of goods and materials followed a 1 percent gain in March, the Labor Department said.
Excluding food and energy, the index rose 0.1 percent, the 11th straight reading of that size or smaller.
Alberto-Culver hasn't raised prices this year, Bernick said.
EMC Corp is charging less for data storage systems, leading the company to a third quarterly loss. Amid little sign of inflationary pressures, Federal Reserve policy makers have room to leave the benchmark interest rate at a 40-year low and focus on ensuring that the economy continues to recover from a recession that started last year.
Demand watch
"Fed officials are watching demand now, not inflation," said Christopher Low, chief economist at First Tennessee Bank in New York. "This report offers no reason to change that focus."
Economists had expected the index of prices at the wholesale level to rise 0.4 percent, based on the median of 61 forecasts in a Bloomberg News survey. They had also projected a 0.1 percent gain in prices excluding food and energy.
Al Broaddus, president of the Federal Reserve Bank of Richmond, told the Wall Street Journal in an interview this week that policy makers must be prepared to guard against falling prices. It would be "ironic to have fought all this time to bring the inflation rate down ... and then lose price stability on the down side," the paper quoted Broaddus.
Growth concerns
US stocks fell amid investor concerns that slower growth will weaken a rebound in profits. Treasuries rose on signs the economic recovery is slowing.
The Dow Jones Industrial Average fell 104 points, or 1 percent. The NASDAQ Composite Index fell 47 points, or 2.9 percent. The Treasury's 4 7/8 percent note maturing in February 2012 rose 7/32, pushing the yield down 3 basis points to 5.13 percent. A basis point is 0.01 percentage point.
The US economy grew at a 5.8 percent annual rate in the first quarter, the fastest in two years. Economists expect that growth will slow to a 3.1 percent annual rate in the April-June quarter, the latest Blue Chip Economic Indicators survey shows.
Producer prices in April were 2 percent lower than in the same month last year. In February, prices were down 2.6 percent from a year earlier, the biggest decrease since February 1950.
Consumer prices
Prices for consumer products, including cars, clothing, gasoline and food, fell 0.2 percent in April and were 2.4 percent lower than last year.
Food prices fell 3.2 percent, the largest decline since June 1974, led by a record 47 percent decline for vegetables. Lettuce prices had soared in March after a cold snap in Arizona and California reduced the crop and costs retreated last month.
Passenger car prices were unchanged after falling 0.4 percent in March. General Motors Corp, the world's largest automaker, extended cash rebates and no-interest financing on most models until April 30. The loans are accounted for as a price decline because factories absorb the cost.
RSS