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Wholesale Prices in U.S. Increase More Than Estimated on Tobacco, Trucks

Wholesale costs in the U.S. rose more than forecast in July, led by higher prices for tobacco, trucks and pharmaceuticals, showing declines in commodity expenses have yet to filter to other goods.

The 0.2 percent advance in the producer price index followed a 0.4 percent drop in June, Labor Department figures showed today in Washington. Economists forecast a 0.1 percent increase, according to the median estimate in a Bloomberg News survey. The so-called core measure, which excludes volatile food and energy, climbed 0.4 percent, the most since January.

The report showed the cost of crude goods dropped in July for a third consecutive month, led by declining petroleum and food prices. Slowing sales and the drop in raw materials mean companies will be less likely to raise prices, which may give Federal Reserve policy makers more room to act to spur growth after the world’s largest economy almost stalled.

“Pipeline pressures continue to moderate,” said Joseph Brusuelas, a senior economist at Bloomberg LP in New York. “Relief for producers from a long period of rising input costs are in train.”

Most stocks dropped as Dell Inc. forecast weaker sales. The Standard & Poor’s 500 Index advanced less than 0.1 percent to 1,193.88 at the 4 p.m. close in New York. About 21 stocks fell for every 20 that rose. Treasury securities climbed, sending the yield on the 10-year note down to 2.16 percent from 2.22 late yesterday.

Survey Results

The median estimate for producer prices was based on forecasts from 78 economists. Projections ranged from declines of 0.5 percent to increases of 0.6 percent. The decrease in June was the first drop in a year.

Compared with July 2010, companies paid 7.2 percent more for goods last month after a 7 percent rise in June.

Excluding volatile food and energy costs, wholesale prices were projected to rise 0.2 percent from the prior month, the Bloomberg survey showed. Core wholesale prices climbed 2.5 percent in the 12 months ended in July, the biggest year-to-year increase since June 2009.

Fuel costs fell 0.6 percent as gasoline prices dropped 2.8 percent, today’s report showed. The cost of finished consumer foods increased 0.6 percent, led by potatoes and cheese.

Expenses for intermediate goods increased 0.2 percent from the prior month, while prices of crude goods dropped 1.2 percent.

Trucks, Tobacco

Companies were charged 1 percent more for light motor trucks, while pharmaceutical prices climbed 0.4 percent. The cost of tobacco products jumped 2.8 percent, the most since March 2009.

“Inflation has moderated as prices of energy and some commodities have declined from their earlier peaks,” the Federal Open Market Committee said in a statement Aug. 9. “Inflation will settle, over coming quarters, at levels at or below those consistent with the Committee’s dual mandate” of maximum employment and price stability.

Economic growth in the U.S. that the Fed officials said has been “considerably slower” than forecast earlier this year prompted the central bank to announce it would hold the benchmark lending rate near zero “at least” into 2013.

A jobless rate at 9.1 percent that hampers wage gains and consumer spending makes it less likely inflation will accelerate in coming months. Household purchases declined 0.2 percent in June, the first decrease in almost two years, Commerce Department figures showed Aug. 2. The report also showed incomes grew 0.1 percent that month, the smallest gain since November.

‘Looking for Value’

“The consumer continues to be wary and looking for value,” said Larry Merlo, president and chief executive officer of CVS Caremark Corp. (CVS), the largest provider of prescription drugs in the U.S. “We’ve seen evidence of where she has traded down from a premium product to a less expensive product.”

The Woonsocket, Rhode Island-based company reported second- quarter profit that topped analysts’ estimates, helped by the introduction of lower-price merchandise. During the Aug. 4 earnings call, Merlo described CVS as “recession resistant” because it offers cheaper goods.

Producer prices, one of three monthly inflation gauges reported by the Labor Department, are calculated based on costs on the Tuesday of the week containing the 13th of the month, which may influence month-to-month changes.

Prices of goods imported into the U.S. rose 0.3 percent in July from the prior month, Labor Department data showed yesterday. Costs advanced 14 percent from July 2010.

Consumer prices, the broadest of the three measures, rose 0.2 percent in July as did the core index, according to the median forecasts of economists surveyed by Bloomberg before a Labor Department report tomorrow.

To contact the reporter on this story: Alex Kowalski in Washington at akowalski13@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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