Producer Prices in U.S. Probably Fell in August on Energy Costs

By Courtney Schlisserman

Sept. 18 (Bloomberg) -- Prices paid to U.S. producers probably fell in August, diminishing concern over inflation as the Federal Reserve considers lowering interest rates.

Economists project a 0.3 percent decrease in wholesale prices following a 0.6 percent July gain, based on the median of 76 estimates in a Bloomberg News survey. So-called core costs, which exclude food and energy, probably increased 0.1 percent for a second month.

Less inflation gives policy makers more reason to lower the target rate later today in an effort to sustain the expansion as housing tumbles. A drop in fuel expenses pushed prices down in August and slower economic growth will continue to restrain raw- material costs in coming months, economists said.

``Another tame reading on the PPI would provide a very good environment for the Fed to cut interest rates,'' said Ryan Sweet, an economist at Moody's Economy.com in West Chester, Pennsylvania.

The Labor Department is scheduled to release the producer prices report at 8:30 a.m. local time in Washington. Economists' forecasts ranged from a drop of 1.2 percent to a gain of 0.5 percent.

Projections for core prices ranged from little change to a 0.3 percent increase.

Economists almost universally forecast the Fed will cut the benchmark overnight lending rate between banks for the first time since 2003. The median calls for a quarter-point cut to 5 percent. The central bank typically makes its announcement around 2:15 p.m. in Washington.

Builder Sentiment

A separate report from Wells Fargo/National Association of Home Builders scheduled for 1 p.m. may show an index of builder sentiment dropped to 20, matching a record low reached in 1991, according to the median estimate in a Bloomberg News survey.

The producer-price report is the second of three monthly inflation gauges. The government said on Sept. 14 that import prices dropped 0.3 percent in August, the first decline in seven months. Results for consumer prices will be issued tomorrow.

``Notwithstanding oil prices, we really haven't seen signs of passthrough from PPI to consumer prices,'' said Meny Grauman, an economist at Scotia Capital in Toronto.

The government, in calculating wholesale prices, asks survey participants to report costs as of the Tuesday of the week that includes the 13th. On that basis, crude oil fell 0.6 percent, according to figures from the New York Mercantile Exchange. Petroleum futures have since surged amid concerns about supplies.

The costs of wholesale gasoline and natural gas also dropped last month.

Prices Diverge

The producer-price index includes only goods while the consumer-price measure covers both goods and services. Core wholesale prices so far this year have accelerated while core consumer prices have eased, driven by smaller rent increases.

Core wholesale prices were up 2.3 percent in the 12 months ended in July, up from a 1.7 percent year-over-year increase in January. Core consumer prices slowed from a 2.7 percent year- over-year gain at the start of 2007 to a 2.2. percent increase in the 12 months ended July.

The Fed cut the interest rate on loans to banks on Aug. 17 as global stock markets slumped on concern damage from rising mortgage defaults was spreading. At the time, policy makers dropped language indicating their bias toward fighting inflation and instead highlighted a rising threat to economic growth.

``The Federal Reserve must remain vigilant on inflation but give appropriate attention to keeping demand from falling below supply as well,'' Fed Governor Frederic Mishkin said last week. ``The risks to the inflation outlook have become more balanced, given the greater downside risks to real growth.''

Apple Discounts

Faced with the prospect of an economic slowdown, some companies are lowering prices to stoke demand ahead of the key holiday-spending season in the last three months of the year.

Apple Inc. Chief Executive Officer Steve Jobs earlier this month cut the price of the iPhone by $200 to boost sales. The calendar fourth quarter and the back-to-school season that just ended are Apple's two busiest periods.

Others are suffering from increases in commodity costs and are boosting prices as a result.

``We've already raised prices and have more planned,'' Sara Lee Corp. Chief Executive Officer Brenda Barnes told analysts last week. ``We are certainly facing these headwinds of increased commodity costs, some of them at unprecedented levels, like wheat.''

Sara Lee fell $10 million short of covering the jump in raw-material costs, even after raising prices on bread and coffee, Barnes said.


                        Bloomberg Survey

FIRM PPI PPI NAHB
Core Housing
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Number of replies 76 74 40
MEDIAN -0.3% 0.1% 20
AVERAGE -0.3% 0.1% 20
High Forecast 0.5% 0.3% 22
Low Forecast -1.2% 0.0% 17
Previous 0.6% 0.1% 22
---------------------------------------------------
4CAST Ltd. -0.7% 0.2% 19
Action Economics -1.2% 0.1% 18
AIG Global Invest. -0.1% 0.2% 22
Alleti Gestielle SGR -0.2% 0.1% n/a
Analytical Synthesis n/a n/a 17
Argus Research 0.1% 0.1% n/a
BBVA -0.2% 0.2% 22
BMO Capital Markets -0.3% 0.1% 20
BNP Paribas 0.1% 0.2% 19
B of A Securities -0.3% 0.2% n/a
Banca IMI -0.4% 0.1% n/a
Bantleon Bank AG -0.3% n/a n/a
Barclays Capital -0.4% 0.2% n/a
Bear Stearns -0.3% 0.2% n/a
BOT- Mitsubishi -0.4% 0.1% 20
Briefing.com -0.7% 0.2% n/a
Calyon -0.1% 0.1% n/a
CFC Group -0.2% 0.0% 19
CIBC World Markets -0.3% 0.1% n/a
Citigroup -0.2% 0.1% n/a
ClearView Economics -0.4% 0.0% n/a
Commerzbank -0.3% 0.1% n/a
Credit Suisse -0.7% 0.0% n/a
Daiwa Securities -0.1% 0.2% n/a
Danske Bank 0.2% 0.3% 21
DekaBank -0.4% 0.1% n/a
Desjardins Group -0.3% 0.1% n/a
Deutsche Bank 0.1% 0.1% 21
Deutsche PostBank -0.1% 0.2% n/a
Dresdner Kleinwort -0.4% 0.1% 20
DZ Bank -0.3% 0.1% 19
FTN Financial 0.2% 0.1% 19
First Trust Advisors -0.3% 0.1% n/a
Fortis -0.3% 0.2% 20
Global Insight -0.6% 0.0% n/a
Goldman Sachs 0.1% 0.2% n/a
H&R Block Financial -0.2% 0.2% 18
High Frequency -0.4% 0.1% 20
HBOS Treasury -0.1% 0.2% 22
HSBC Markets -0.3% 0.1% n/a
HSH Nordbank AG -0.2% 0.2% 21
Horizon Investments -0.4% 0.1% 21
IDEAglobal -0.1% 0.1% n/a
ING Barings 0.0% 0.1% 19
Informa Global -0.5% 0.1% 20
Insight Economics -0.3% 0.1% n/a
Intesa-SanPaulo -0.1% 0.1% 20
J.P. Morgan Chase -0.7% 0.0% 19
JPMorgan Private -0.3% 0.1% 19
Landesbank BW -0.1% 0.1% 20
Landesbank Berlin 0.1% 0.1% n/a
Lehman -0.4% 0.1% 19
Lloyds TSB 0.1% 0.1% 20
Maria Fiorini -0.1% 0.2% 21
Merrill Lynch -0.1% 0.1% 19
Mizuho Securities 0.5% 0.0% n/a
Moody's Economy.com 0.0% 0.1% n/a
Morgan Stanley -0.7% 0.0% n/a
National Bank Fin. -0.2% 0.1% n/a
National City Bank -0.3% 0.1% n/a
Nomura 0.1% 0.1% n/a
PNC Bank -0.4% 0.1% n/a
Putnam -0.1% 0.1% n/a
RBS Greenwich Cap. -0.4% 0.0% n/a
Ried, Thunberg -0.4% 0.1% 20
Scotia Capital 0.0% 0.2% 20
Societe Generale -0.8% 0.1% n/a
Stone & McCarthy -0.5% 0.2% 21
Thomson/IFR -0.3% 0.2% 22
UBS Securities LLC -0.5% 0.2% 18
Unicredit- UBM 0.1% 0.1% 18
Univ. of MD -0.3% 0.1% 19
Wachovia -0.2% 0.1% n/a
Wells Fargo -1.2% n/a n/a
WestLB AG -0.3% 0.2% 20
Westpac Banking -0.4% 0.0% 20


Wrightson -0.2% 0.2% 19



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