August 14, 2012 / 12:39 PM / 5 years ago

Producer prices up in July but energy costs decline

A view of employees working at the General Motors assembly plant in Wentzville, Missouri February 7, 2012. REUTERS/Sarah Conard

WASHINGTON (Reuters) - Producer prices rose in July at the fastest pace in five months on higher costs for light trucks, pharmaceutical drugs and cigarettes, although falling energy prices pointed to muted inflation pressures.

The Labor Department said on Tuesday its seasonally adjusted Producer Price Index climbed 0.3 percent last month. Analysts polled by Reuters expected the index to increase 0.2 percent.

The increase was driven by gains in consumer goods, with light trucks up 1.6 percent and pharmaceuticals up 0.9 percent.

Higher food costs also fueled the gain in the overall index. U.S. crops have been struck by a drought in parts of the country.

Energy prices, however, fell 0.4 percent last month. They were down for a the fifth straight month in a trend that has been cooling inflation pressures for most of the last year. Wholesale gasoline prices fell 3.1 percent in July.

While overall inflation has cooled recently, core inflation has held at higher levels. Some policymakers at the Fed worry that further moves to lower borrowing costs could fuel higher inflation, though the central bank has said it was ready to do more to help the economy if needed.

The fall in energy prices is likely to help the economy as lower costs for fuels and other input prices leave companies more money to spend on other things, such as equipment or even hiring.

Reporting by Jason Lange; Editing by Neil Stempleman

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