Wholesale Prices Drop 0.1% in August : Economy: Low inflationary pressure raises possibility of another rate cut.

Wholesale prices fell slightly in August, the Labor Department reported Tuesday, adding to evidence that inflationary pressures have largely been wrung out of the recovering economy.

The producer price index fell 0.1% last month, after being unchanged in July. The August result was even better than Wall Street estimates of an increase of 0.1%.

The Labor Department, in its report on prices, said that with the volatile food and energy sector factored out, the underlying core rate of wholesale inflation rose 0.1% after moving up 0.2% in the prior month.

The new data comes as the economy appears to be recovering from a slump in the second quarter and consumers are taking advantage of low long-term interest rates.

The Federal Reserve Board’s policy-making Federal Open Market Committee meets later this month to decide the course of short-term interest rates. Some economists think that the Fed will cut rates another notch, since inflation remains tame. The central bank cut interest rates in July for the first time in nearly three years.

“The figures look terrific,” said Eugene Sherman, senior vice president and director of research at investment firm M.A. Schapiro & Co. Inc.

“It’s a very positive number from the sense of inflation being very calm and stable. At the producer level, we are close to price stability and that’s the Fed’s goal.”

The White House also gave the report high marks. “There is no sign at this point of any significant incipient inflationary pressures,” said Laura D’Andrea Tyson, head of the National Economic Council.

The Labor Department said the decline in August matched the June drop and was the largest fall since a 0.4% drop in October.

Energy prices, it said, declined 0.9% as gasoline prices fell 1.9%.

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Producer Prices

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

August 1995: 127.7

Source: Labor Department