June saw a decline in wholesale prices, which goes against what was

forecasted.

The 0.5 percent decline in prices paid to factories, farmers and other
producers compared with a 0.1 percent median drop projected in a
Bloomberg survey of economists and followed a 0.3 percent decline in
May, figures from the Labor Department showed today in Washington.
Excluding food and fuel, so-called core prices climbed 0.1 percent,
matching the median estimate.

Europe’s credit crisis is prompting economists and policy makers to trim

inflation forecasts on increased prospects for weaker global growth and a
stronger U.S. dollar. Companies have little ability to raise prices with about
25 percent of plant space unused and unemployment at 9.5 percent,
leaving the Federal Reserve scope to hold its benchmark interest rate near
zero in coming months.

“We’re going to flirt with deflation, but we don’t think it’s going to be a
lasting period of deflation,” said Russell Price, a senior economist at
Ameriprise Financial Inc. in Detroit. “For now, it’s appropriately a wait-and-
see attitude for the Fed.”

A separate report from the Labor Department today showed fewer

Americans than projected filed applications for unemployment benefits last
week, reflecting a smaller number of factory closings for this time of year.

New York Factories

Manufacturing in the New York region expanded in July at the slowest pace
this year as measures of orders and sales cooled, another report showed
today. The Federal Reserve Bank of New York said its general economic
index dropped to 5.1, lower than economists estimated, from 19.6 the
month before.

Stock futures trimmed gains after the manufacturing report. Futures on the
Standard & Poor’s 500 Index rose 0.2 percent to 1,092.8 at 9:14 a.m. in
New York after rallying as much as 0.7 percent.

Initial jobless claims dropped by 29,000 to 429,000 in the week ended July
10, the fewest since August 2008. The government anticipates an increase
in temporary factory layoffs in early July that did not occur this year, leading
to the decrease in applications, a Labor Department spokesman said.

Goods Prices

Compared with a year earlier, companies paid 2.8 percent more for goods
in June after rising 5.3 percent in the 12 months ended in May.

Excluding food and energy, wholesale prices rose 1.1 percent in the 12
months ended in June after a 1.3 percent year- over-year increase a month
earlier.

The cost of food decreased 2.2 percent in June, the biggest drop since
April 2002, as the cost of fruits and vegetables declined. Energy prices fell
0.5 percent last month on cheaper heating oil and diesel fuel.

The European debt crisis may limit the cost of imported goods by pushing
up the value of the dollar against the euro, making goods from the
European Union cheaper.

Producer prices are one of three monthly inflation gauges reported by the
Labor Department. Figures yesterday showed prices of goods imported into
the U.S. fell 1.3 percent in June after a 0.5 percent decline a month earlier.

The government is scheduled to release its consumer price index

tomorrow. The median estimate of economists surveyed calls for a 0.1
percent decrease compared with May.

Fed Minutes

Fed officials last month were concerned about lingering high

unemployment and risks that inflation could decelerate further, minutes of
their June meeting showed. If the outlook worsened, the committee would
need to consider whether additional stimulus was appropriate, according to
minutes released yesterday in Washington.

Prices of intermediate goods fell 0.9 percent in June and were up 6.4
percent compared with a year earlier, today’s report showed. Prices of
crude goods dropped 2.4 percent last month and were up 13 percent from
a year ago.

The cost of steel mill products decreased 1.3 percent last month. Dan
DiMicco, chief executive officer of Nucor Corp., is among company leaders
projecting the economic recovery will be slow to develop. The largest U.S.
steelmaker last month forecast second-quarter earnings that trailed
analysts estimates amid weak demand from the construction industry.

“The economy is going to be struggling along here for a little bit in the third
quarter,” DiMicco said in a June 23 interview. He said the U.S. faces “a
long road back” unless government works with the private sector to reduce
unemployment.

Some commodity prices are translating into higher sales for American
companies. Alcoa Inc., the largest U.S. aluminum producer, this week
reported second-quarter profit that topped analysts’ projections as higher
metal prices boosted revenue.