Wholesale prices drop in April on falling gas prices

     
WASHINGTON (AP) – A big decline in gas and energy costs drove a measure of wholesale prices lower in April. But outside that drop, inflation was tame.

    * Carlin Malina pumps gas at a Ugas station April 24, 2012 in Miami. A drop in gasoline prices helped keep wholesale prices down.

      By Joe Raedle, Getty Images

      Carlin Malina pumps gas at a Ugas station April 24, 2012 in Miami. A drop in gasoline prices helped keep wholesale prices down.

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By Joe Raedle, Getty Images

Carlin Malina pumps gas at a Ugas station April 24, 2012 in Miami. A drop in gasoline prices helped keep wholesale prices down.
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The Labor Department said Friday that the producer price index, which measures price changes before they reach the consumer, dropped 0.2% last month. It was the first decline since December and the biggest drop since October.

Wholesale gas prices tumbled 1.7%. That accounted for half the drop in energy costs, which was the only major category to decline last month.

Excluding volatile food and energy costs, the so-called core index rose 0.2%.

For the 12 months ended in April, wholesale prices have risen just 1.9%. That's the smallest 12-month change since October 2009 and in line with the Federal Reserve's inflation target.
Producer price index

The drop in gas prices is a relief to consumers. Retail gas prices spiked earlier this year but have dropped 5% since peaking in early April. The national average fell to roughly $3.74 per gallon on Thursday, roughly 20 cents cheaper than a month ago.

Modest wholesale inflation reduces pressure on manufacturers and retailers to raise prices. That helps keep consumer prices stable, which boosts their buying power and drives economic growth. Consumer spending makes up 70% of economic activity.

Lower inflation also gives the Federal Reserve room to hold interest rates at record-low levels.

Higher gas and food prices early last year limited Americans' ability to buy other goods, which slowed growth. The economy expanded just 1.7% in 2011.

A small amount of inflation can be good for the economy. It encourages businesses and consumers to spend and invest money sooner rather than later, before inflation erodes its value.

The Fed last month reiterated that it expects to keep its key interest rate at a record low through at least late 2014. That's not likely to change when the Fed next meets June 19-20.

Through the first three months this year, the economy grew at an annual rate of 2.2%. That's better than last year but slower than the 3% annual growth logged in the October-December quarter.