By Andrew Williams
Washington, July 13 (BridgeNews) - U.S. producer prices weakened significantly last month, allowing Federal Reserve policy-makers room to cut interest rates again when they meet next month, economists said Friday.
Analysts also noted prices at the core and intermediate level of production both fell, showing global demand for most raw materials remains weak at all stages of production.
Plunging energy prices pulled U.S. producer prices down 0.4% in June, the biggest decline since February 1999, the Labor Department reported Friday.
Excluding food and energy, wholesale prices rose only 0.1%. Wall Street analysts polled by BridgeNews had expected producer prices to fall 0.1% and for the core PPI to gain only 0.1%.
"The news is fabulous and pretty much in line with our expectations," Salomon Smith Barney economist Brian Jones said. "We have a big decline in energy prices and just a modest increase in core finished and intermediate prices."
Analysts agreed that the report should put to rest recent concerns that inflation may be creeping up with the increasing money supply brought about by the Fed's aggressive easing so far this year.
The PPI showed "broad-based containment and very much supports the notion more easing of policy if the demand side stayed subdued," Mike Moran of Daiwa Securities said.
"I think the Fed is going to be very comfortable with this report, we've been talking about 25 basis points next month and this is going to play right into (that)...there is room to ease without setting off any major inflation." Carol Stone, an economist at Nomura Securities, said. The Fed's next policy meeting is scheduled for Aug. 21.