A combine drives through a field of soft red winter wheat during the harvest on a farm in Dixon, Illinois

A combine drives through a field of soft red winter wheat during the harvest on a farm in Dixon, Illinois (Jim Young Reuters, / September 16, 2014)


WASHINGTON (Reuters) - U.S. producer prices were flat in August, pointing to muted inflation pressures that should allow the Federal Reserve to bide its time as it considers when to raise interest rates.

The Labor Department said on Tuesday falling gasoline and food prices restrained its producer price index for final demand last month. Prices received by the nation's farms, factories and refineries had edged up 0.1 percent in July.

"The Fed has more time to allow monetary policy to work its way through the economy before feeling the need to raise rates," said Jay Morelock, an economist at FTN Financial in New York.

Economists had expected producer prices to gain 0.1 percent last month. In the 12 months through August, they increased 1.8 percent, accelerating a bit from the 1.7 percent rise in the year through July.

The report came as Fed officials gathered for two-day policy meeting. They have held benchmark rates near zero since late 2008, but are seen inching toward an increase around the middle of next year.

Data on retail sales, manufacturing, the services sector and housing have indicated the economy is on a firm growth path, although a quarterly survey of U.S. chief executive officers released on Tuesday showed they had grown gloomier on plans for hiring and more wary about sales prospects.

Despite the mostly upbeat readings on the economy's health, the tame reading on producer prices suggested the U.S. central bank need not rush to remove its monetary stimulus.

"If (Fed Chair Janet) Yellen is looking for evidence of slack in the economy, and thinking that inflation is too low, then PPI final demand prices fill the bill this morning," said Chris Rupkey, chief financial economist at MUFG Union Bank in New York.

U.S. financial markets were little moved by the data as traders took to the sidelines to await the Fed's policy statement on Wednesday.

The PPI last month was dampened by a 1.4 percent decline in gasoline prices, which followed a 2.1 percent fall in July. Food prices slipped 0.5 percent after rising 0.4 percent a month earlier.

Easing wholesale food and gasoline prices could tame consumer prices over the coming months.

The Labor Department will on Wednesday release August consumer prices data, with economists expecting prices to hold steady on a month-on-month basis after nudging up 0.1 percent in July.

The producer prices report showed prices received for services at the final demand level increased 0.3 percent after rising 0.1 percent in July. A 1.7 percent surge in prices for loan services accounted for more than 20 percent of last month's increase.

Producer prices excluding food and energy ticked up 0.1 percent, slowing from a 0.2 percent gain in July. In the 12 months through August, the core PPI for final demand advanced 1.8 percent. It had increased 1.6 percent in July.

A broader measure, which excludes food, energy and trade services, increased 0.2 percent for a third straight month. It was up 1.8 percent compared to a year ago.


(Reporting by Lucia Mutikani; Editing by Paul Simao)