Wholesale Prices Take a Rare Dip in June : Economy: The benign inflation news is seen as giving the Fed more room to lower interest rates.

Wholesale prices declined in June for the first time in eight months, helped by a big drop in energy prices and the largest fall in fruit prices in 15 years.

The benign inflation news Thursday is seen as welcome confirmation for the Federal Reserve Board that its switch last week from fighting inflation to fighting recession does not mean it is abandoning the price battle prematurely.

Analysts predicted the 0.1% decline in the Labor Department’s producer price index in June and expected good news Friday on retail prices will give the Fed room to cut interest rates further to ward off a recession.

“The Fed can feel justified about their decision to ease policy last week. Inflation remains subdued,” said Bruce Steinberg, an economist at Merrill Lynch in New York.

The small decline in the PPI, which measures inflationary pressures before they reach the consumer, followed no change at all in May and a steep 0.5% rise in April. It marked the first time wholesale prices had fallen since a 0.4% decline last October.

After filtering out food and energy costs--which can swing widely month to month--the closely watched “core” PPI rose just 0.2% in June after being up 0.3%.

In another report, the government said first-time claims for unemployment benefits were unchanged last week at 370,000 while the closely watched four-week moving averaged dipped for a second straight week.

Analysts see the jobless report as further confirmation that after a pronounced slowdown, the labor market is beginning to stabilize. Last week, the government said the unemployment rate dropped to 5.6% in June, after hitting a high of 5.8% in April.

On July 6, the Fed reduced its target for the federal funds rate, the interest that banks charge each other, from 6% to 5.75%, the first reduction in nearly three years. From February, 1994, to February, 1995, the central bank had increased interest rates seven times in a preemptive strike against inflation.

Food prices dropped 0.3% last month, the fourth straight monthly decline.

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Producer Prices

Index of finished goods prices, 1982=100. Seasonally adjusted:

June 1995: 127.8

Source: Bureau of Labor Statistics