PPI Falls 0.7%; 2001 Tamest Year for Inflation Since 1986

Wholesale prices, which form the producer price index, fell 0.7% in December, the third straight monthly decline, the Labor Department said Friday.

This made 2001 the tamest year for wholesale inflation since 1986, as the December report reflected declining costs for energy, autos and food. Excluding the volatile food and energy sectors, the core rate of inflation fell 0.1%.

The drop in the producer price index, measuring cost pressures before they reach consumers, is a sign that slow demand is forcing companies to charge less for goods, Bloomberg reported.

Although weak demand for goods would mean fewer shipments for trucking companies, the absence of inflationary pressure means there is no urgency for the Federal Reserve to raise interest rates, now at a 40-year low of 1.75%.

It also may free the Fed to cut interest rates again, if it believes another cut is needed to spur economic activity.

The fall in prices was steeper than the drop of 0.2% expected by Wall Street economists, Reuters said. These same economists thought core prices would rise 0.1%.

Labor said that gasoline prices decreased 8.2% last month after falling 10.3% in November. Prices for energy fell 4.0% in December, and electricity, residential natural gas and heating oil prices also declined.

For the year, the price index fell 1.8%, meaning that consumers are benefiting from cheaper goods, but corporate profits are suffering, Bloomberg reported.

Producer prices haven't fallen for three straight months since a four-month string of declines from November 1997 to February 1998.

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