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Wholesale prices soar in June; Sales are sluggish PDF Print E-mail
Wednesday, 16 July 2008

AP, WASHINGTON  -- The economy showed the depth of its twin problems on Tuesday, slow growth and rising inflation, as the nation wrestled with a teetering financial system, a slumping dollar and rising prices for food and fuel.

The Labor Department reported that soaring costs for gasoline and food pushed inflation at the wholesale level up by a bigger-than-expected 1.8 percent in June, leaving inflation rising over the past year at the fastest pace in more than a quarter-century.
 
Over the past 12 months, wholesale prices are up 9.2 percent, the largest year-over-year surge since June 1981, another period when soaring energy costs were giving the country inflation pains.
 
Core inflation, which excludes energy and food, was better behaved in June, rising by just 0.2 percent, slightly lower than expectations.
 
A separate report from the Commerce Department showed that all the economy's problems were weighing on the consumer. Retail sales edged up by a tiny 0.1 percent in June, weaker than had been expected, as consumer spending was held back by a sharp plunge in sales at auto dealerships.
 
U.S. stocks headed for a sharply lower open as the reports on inflation and retail sales failed to cool concerns about the financial sector. Banking stocks were pounded on Monday despite the government's efforts to calm concerns with a support package fashioned over the weekend for mortgage giants Fannie Mae and Freddie Mac.
 
Federal Reserve Chairman Ben Bernanke said Tuesday that the fragile economy was being confronted by ''numerous difficulties'' including persistent strains in financial markets, rising joblessness and housing problems. He said rising prices for energy and food were elevating the risks of inflation.
 
Delivering his midyear economic report to the Congress, Bernanke said the current situation poses ''significant challenges'' for Fed policymakers as they try to chart the best course for keeping the economy growing, while making sure inflation doesn't dangerously flare up.
 
The Fed signaled an end to an aggressive rate-cutting campaign in June because of growing concerns about inflation. Bernanke kept up his tough anti-inflation talk on Tuesday but stressed many other problems that could short circuit economic growth.
 
In a third economic report, the Commerce Department said business inventories rose at a slower-than-expected pace in May, a possible indication that the weakening economy is making companies cautious on their restocking plans.
 
The department said inventories held on shelves and backlots edged up 0.3 percent in May, smaller than the 0.5 percent gain that many economists had been expecting. It was the smallest monthly increase since inventories had risen just 0.2 percent in April.
 
Many economists are worried that a host of problems from a lengthy slump in housing to a severe credit crunch could push the country into a recession. But so far, the overall economy, as measured by the gross domestic product, has managed to stay in positive territory, helped in part by companies rebuilding their inventories.
 
For June, energy prices at the wholesale level shot up by 6 percent; the price of unleaded regular gasoline surged by 9 percent following an even bigger 9.6 percent increase in May.
 
The 0.1 percent rise in retail sales was even weaker than the 0.4 percent gain that analysts had been expecting.
 
That small rise reflected a 3.3 percent drop in sales at auto dealerships, offsetting a big 4.6 percent jump in sales at gasoline stations, an increase that largely mirrored last month's huge jump in pump prices.
 
General Motors said Tuesday that it plans to lay off salaried workers, cut truck production and suspend its stock dividend, showing the depth of the U.S. auto industry's mounting troubles as it adjusts to a declining U.S. market.
 
GM said it would also borrow $2 billion to $3 billion as part of an effort to raise $15 billion to help turn around its North American operations.

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