Drop in Energy Pushes Down Wholesale Prices

By JACK HEALY
The New York Times
Published: Jan 16, 2009

The price of wholesale goods in the United States dropped in December as the spreading recession continued to reduce the demand for a range of products.

The Bureau of Labor Statistics reported on Thursday that the producer price index fell 1.9 percent in December, its fifth consecutive monthly month of declines, following a 2.2 percent drop in November. The price of finished goods fell 0.9 percent for all of 2008, compared with a 6.7 percent increase in 2007.

Wholesale and consumer prices have slid back sharply in the economic downturn as oil prices collapsed, raising fears among some economists that the economy is flirting with the destructive cycle of declines in prices and wages known as deflation.

The government reported that gasoline prices tumbled by 25.7 percent last month and liquefied petroleum gas fell 21.8 percent as overall energy prices dropped 9.3 percent. Lower energy costs reduced the price of a range of products, from fertilizers to rubber to steel.

Food prices posted their sharpest drop of the year in December, falling 1.5 percent from a month earlier, and energy costs fell 9.3 percent. The so-called core rate, which excludes volatile food and energy costs, rose 0.2 percent last month. Core inflation was up 4.3 percent for the year.

The cost of cars rose 1.2 percent in December.

Also on Thursday, the Labor Department reported that first-time unemployment claims rose 54,000 last week to a seasonally adjusted 524,000, a sign of more turmoil for American workers. Unemployment has risen to 7.2 percent since the United States slipped into a recession in December 2007, and economists say the jobless rate could crest to 9 percent or more.

“The experience of previous deep recessions suggests claims are nowhere near their peak, and we doubt that peak will be reached before the fall of this year,” Ian Shepherdson, chief United States economist at High Frequency Economics, wrote in a note.

The four-week average, which smoothes out fluctuations, fell by 8,000 to 518,500 last week.

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