“Vegetables in Whole Foods Market” by Masahiro Ihara licensed under CC BY 2.0

By MARTIN CRUTSINGER AP Economics Writer

WASHINGTON (AP) — U.S. wholesale prices fell 0.2% in June as food costs dropped sharply, offsetting a big increase in energy prices.

The drop in the Producer Price Index, which measures inflation pressures before they reach consumers, followed a 0.4% gain in May, the Labor Department reported Friday. Wholesale prices have fallen in four of the past five months.

The country has been pushed into a deep recession that is expected to lead to an unprecedented contraction of the economy in the April-June quarter. It is likely the downturn, triggered by the coronavirus pandemic, will keep inflation muted.

“The June decline in producer prices underscores that price pressures in the broader economy remain extremely tame,” said Lydia Boussour, senior U.S. economist at Oxford Economics. “The expected gradual recovery in demand, along with a strong dollar and depressed oil prices, will keep a lid on price inflation for months to come.”

The absence of inflation has given the Federal Reserve the leeway to cut interest rates to a record low and make other moves to try to bolster the eonomy during the global pandemic.

The 0.2% drop in wholesale prices in June reflected a 5.2% decline in food costs which helped to offset a 7.7% jump in energy prices. The price of gasoline jumped 26.3%. The price of services fell sharply although hospital inpatient care rose by 0.8%, likely reflecting the added pressures on a hospital system burdened by dealing with a surge in coronavirus cases.

Over the past year, wholesale prices have fallen 0.8%. Core wholesale prices, which exclude food and energy, were down 0.3% in June and up a tiny 0.1% over the past year.

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US Wholesale Prices Fell 0.2% in June as Food Costs Plunged