Inflation fears ease as producer prices fall Decline in June was sharpest in 2 years


WASHINGTON -- Held down by weakness in economic growth, prices received by American producers fell by three-tenths of 1 percent in June, the biggest monthly decline in more than two years, the Labor Department reported yesterday.

This was the second consecutive reading of the producer price index to provide reassurance that large increases early in the year were an aberration and not the early stages of revived inflation, analysts said. The index was unchanged in May, after a rise of six-tenths of 1 percent in April. It had risen at a 4.7 percent annual rate in the first four months of the year.

Analysts expect similar good news in the report on the consumer price index for June, which will be issued today.

Producer prices last month were modest at the intermediate and crude stages of production as well on the finished-goods level, indicating little price pressure either in the manufacturing pipeline or on finished goods.

With such compelling evidence, the Federal Reserve was seen as likely to abandon any thought of raising interest rates to combat inflation in the near future despite Midwest flooding that is expected to push food prices higher.

"Concerns about accelerating inflation in the early part of the year were misplaced," said Lacy H. Hunt, chief economist for HSBC Holdings in New York, the parent of Marine Midland Bank. "Business conditions are soft -- and getting softer."

A rise in rates would be a blow to the Clinton administration, which lost a congressional battle to pass an economic stimulus program and is counting on low rates to spur the economy. And higher rates could weaken congressional support for the president's $500 billion deficit-reduction program on the ground that higher rates, combined with the program's higher taxes, could send the country back into recession.

The June price decline for finished goods was the first time since November that prices fell and was the biggest decline since March 1991, the month that marked the official end of the recession.

The costs of food and energy both fell, but even with these erratic categories excluded, prices edged down one-tenth of 1 percent. Tobacco was a significant contributor, as the industry's price war finally began to show up in the statistics.

"There's absolutely no reason to be concerned about inflation," said Mark Vitner, an economist for First Union Corp. in Charlotte, N.C.

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