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U.S. Producer Prices Fall 2.2%
By Shobhana Chandra
December 12, 2008

Dec. 12 (Bloomberg) -- Prices paid to U.S. producers fell more than forecast in November on a record reduction in gasoline costs, a sign the recession is cutting demand for fuel and keeping inflation contained.

The 2.2 percent drop in the producer price index followed a record 2.8 percent plunge in October, the Labor Department said today in Washington. The measure that excludes fuel and food gained 0.1 percent, after rising 0.4 percent a month earlier.

Inflation concerns are diminishing as worries about a prolonged U.S. recession intensify. With prices falling for everything from gasoline to cars, economists predict the Federal Reserve will cut interest rates again next week to revive economic growth.

“The immediate problem now is recession, not inflation,” Ken Mayland, president of ClearView Economics LLC in Pepper Pike, Ohio, said before the report. “We’re seeing commodity prices continue to collapse.” Prices paid to factories, farmers and other producers were forecast to decline 2 percent, according to the median estimate of 72 economists in a Bloomberg News survey. Estimates ranged from declines of 0.7 percent to 3.7 percent.

A separate government report today showed retail sales dropped for a fifth straight month in November, with falling purchases at auto dealers overshadowing gains at department stores. The Commerce Department said retail sales fell 1.8 percent, less than forecast.

Treasuries, Stocks

Treasuries rallied and stock-index futures fell in the aftermath of the Senate’s failure late yesterday to approve a bailout for General Motors Corp. and Chrysler LLC. Ten-year Treasury yields fell to 2.57 percent at 8:40 a.m., from 2.61 percent late yesterday. Futures contracts on the Standard & Poor’s 500 Stock Index slid 3.7 percent to 842.20.

Core prices matched the 0.1 percent median estimated in the survey.

Companies paid 0.4 percent more for goods from November 2007, after a 5.2 percent gain in the 12 months ended in October. Excluding food and energy, the increase was 4.2 percent from a year earlier, after a 4.4 percent year-over-year gain in the prior month.

Producer prices are one of three monthly inflation gauges reported by Labor. Prices of goods imported into the U.S. fell last month by the most on record, a report showed yesterday. Figures due Dec. 16 may show November consumer prices fell 1.3 percent, the most on record, according to a Bloomberg survey of economists.

Crude Oil

The government asks producer-price survey participants to report costs for the Tuesday of the week that includes the 13th. On that basis, crude oil on the New York Mercantile Exchange fell by more than a fourth in November from the prior month. Crude oil has continued to decline in December.

In today’s producer price report, the drop was led by lower energy costs, which showed a 11.2 percent decline in November. Liquefied petroleum was 33.4 percent cheaper than a month earlier, the biggest drop since 1974.

Gasoline expenses plunged 25.7 percent, a record for the report, and a 23.3 percent drop in home heating fuel, the steepest decline since 2003. Natural gas costs fell 4.6 percent from the prior month.

Food prices were unchanged in November, after a 0.2 percent decline in October.

Stage of Production

Costs of intermediate goods, those used in earlier stages of production, declined a record 4.3 percent while prices for raw materials, or so-called crude goods, fell 12.5 percent.

Passenger car prices dropped 0.6 percent and light trucks fell 0.1 percent.

After contracting at a 0.5 percent annual pace from July to September, the U.S. economy may shrink 4.3 percent this quarter, according to a Bloomberg survey conducted this month. Together with contractions predicted for the first two quarters of 2009, it’ll be the longest slide since quarterly records began in 1947.

The falling price of metals is hurting companies such as Freeport-McMoRan Copper & Gold Inc., the world’s second-largest copper producer, which is trimming jobs and cutting output in 2009 and 2010.

“We have to be prepared for a protracted period of low prices because of the uncertainties in the marketplace right now,” Richard Adkerson, chief executive officer of the Phoenix- based firm, said in a Dec. 3 interview in New York.

To contact the reporter on this story: Shobhana Chandra in Washington at
Last Updated: December 12, 2008 08:45 EST

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