Wholesale Prices Drop 0.1% But Jump In Retail Sales Rattles Wall Street

Wholesale prices fell in July for an unprecedented seventh straight month, but robust retail sales raised anxiety in financial markets that inflation could reignite.

The Dow Jones industrial average of stock prices, which had lost more than 60 points by midmorning, later regained its losses but closed down 32.52 at 7,928.32. Bonds, on the other hand, ended up slightly.

The Producer Price Index, which measures prices before they reach the consumer, declined a seasonally adjusted 0.1 percent in July, the Labor Department reported. It marked the longest string of declines in the half-century the government has been keeping track.

At the same time, the Commerce Department said retailers rang up a 0.6 percent increase in sales in July after registering a strong 0.7 percent increase a month earlier.

“Consumers clearly have decided to open up their wallets after the lull in the second quarter and are buying everything in sight, including cars,” said economist Sung Won Sohn of the Norwest Corp. in Minneapolis. “They are able to spend money in part because inflation is so low.”

But, Sohn added, some investors are worried that too much consumer spending, plus tightening labor markets, could spark a new round of inflation and persuade the Federal Reserve to raise short-term interest rates for a second time this year.

Fed officials, who meet next week to consider monetary policy, will be watching this week’s economic reports that also include July consumer prices today. So far, consumer inflation also has been well behaved.

“Inflation at the consumer level is likely to remain at 2.5 percent or so over the next year,” said economist Paul W. Boltz of T. Rowe Price Associates in Baltimore. “However, if the unemployment rate keeps drifting lower, I don’t think we can go on indefinitely … without turning it into wage pressures.”

Retail sales totaled a seasonally adjusted $212.1 billion in July, the Commerce Department said. And the department also revised the June gain up to 0.7 percent from the initial 0.5 percent estimate.

Sales were higher in nearly every category, led by a 1 percent jump recorded by automobile dealers. Only furniture and other home furnishing businesses posted losses, down 0.4 percent.

Sales of durable goods - items such as refrigerators and ranges expected to last more than three years - rose 0.7 percent in July after an even stronger 1.1 percent jump in June.

Sales of nondurable goods such as food and fuel increased 0.6 percent following June’s 0.4 percent.

The so-called core index - excluding volatile food and energy costs - also declined 0.1 percent in July, the fourth drop in six months.

Food fell 0.2 percent, the sixth decline in eight months, and offset a tiny 0.1 percent increase in energy prices.

Inflation also was absent earlier in the production pipeline. Intermediate prices fell 0.2 percent, the sixth month without an increase, and crude prices edged 0.1 percent lower.

An example of the three processing stages would be clothing for finished, cloth for intermediate and cotton for crude.