U.S. wholesale prices fell in August by the largest amount in 10 months, reflecting a plunge in the price of gasoline and other energy products and the fourth straight month of falling food costs. The U.S. Labor Department said Tuesday that wholesale prices fell by 1.4 percent last month, the best showing since a 1.5 percent fall last October. The drop was much bigger than the 0.3 percent fall that had been forecast and was led by a 6.6 percent plunge in energy costs, the biggest drop in more than four years. Core inflation, which excludes food and energy, was also well under control, rising by just 0.2 percent. The good price performance encouraged investors that the Federal Reserve would have the space to announce an interest rate cut after their meeing Tuesday. The central bank is expected to cut a key interest rate for the first time in four years in response to a slump in the housing market and widening credit market problems. The 1.4 percent drop in the department's Producer Price Index, which measures inflation pressures before they reach the consumer, more than reversed a 0.6 percent jump in wholesale prices in July. The government will report on consumer prices on Wednesday and they also are expected to show that inflation pressures are slowing. Consumer prices rose just 0.1 percent in July. The 1.4 percent drop in wholesale prices was the third decline this year and left wholesale prices rising over the past 12 months by 2.2 percent. In 2006, core inflation rose by 1.1 percent. The 6.6 percent plunge in energy costs was the sharpest decline since an 8 percent fall in April 2003, the Associated Press reported. It reflected a 13.8 percent fall in gasoline prices, and a record 8.5 percent fall in residential natural gas prices. Home heating oil costs also fell by 6 percent. But economists caution that record crude oil prices in recent days could reverse the energy declines in coming months.
