Prices at the wholesale level appear under control as they fell 0.2% in April.
Friday morning the U.S. Labor Department reported the decline in their Producer Price Index, following a 1% jump in March.
Much of the drop was due to a decline in food prices, which posted their biggest fall in 28 years. When the volatile food and energy sectors are removed from the numbers, the so-called “core rate” of wholesale prices moved up by just 0.1% for the second consecutive month.
In contrast, energy prices moved up 2.5% after falling 5.5% in March.
“This news gives the Federal Reserve Board leeway to delay interest rate increases that would slow the recovery,” says Newport Communications Senior Economist Jim Haughey. Earlier this week the Fed decided to leave interest rates unchanged following speculation they might consider moving them higher.
Increased labor productivity, which has been running higher than normal due to the many jobs cuts in the past year and a half, has helped hold down the wholesale inflation rate, Haughey says. “The flip side of this coin is that it has resulted in slow job growth and a rising unemployment rate for much of this year.”
Haughey notes during April, freight rates rose after more than six months of little change. Truckload rates increased 0.6% and less-than-truckload rates were up 0.3%.
“Freight volume has picked up enough for carriers to begin to recover the higher fuel and insurance costs they incurred in the last six months,” he says.