Wholesale Inflation Rises, Home Construction Falls

The Labor Department's Producer Price Index, which measures prices at the factory door, climbed 1.2 percent after a 1.8 percent gain in June, pushed higher by rising costs for energy, motor vehicles and other products.

The increase was more than twice the 0.5 percent gain that economists expected.

So-called core producer prices, which exclude food and energy, jumped 0.7 percent in July after a 0.2 percent June increase.

The Commerce Department said that builders broke ground on 965,000 housing units on an annualized basis. That was down from 1.08 million in June and the weakest showing since March 1991, but July's performance was better than some analysts expected.

The report also showed that construction of single-family homes in July fell by 2.9 percent to a pace of 641,000, the lowest since January 1991.

Building permits, an indicator of future construction, dropped to an annual rate of 937,000. It was the lowest level since March, when they were 932,000, the Commerce Department said.

Homebuilders are hoping the housing rescue package approved by Congress last month will boost the real estate sector. The law includes a temporary $7,500 tax credit for first-time homebuyers that essentially works out to a 15-year, interest-free loan.

The news on wholesale prices followed a report last week that consumer prices rose by 0.8 percent in July, leaving consumer inflation rising at the fastest pace in 27 years.

The July price pressures reflected the surge in energy costs during the month, which saw crude oil prices at a record of $147.27 per barrel and gasoline pump prices at an all-time high of $4.11 per gallon.

Crude oil prices have fallen by more than $30 per barrel since then, raising hopes that the surge in inflation will soon abate.

On Wall Street, stocks fell after the reports were released. The Dow Jones industrial average dropped 82.89 points, or 0.72 percent, to 11,396 in early trading.

Broader stock indicators also fell. The Standard & Poor's 500 index fell 7.72 points, or 0.60 percent, to 1,270.88, and the Nasdaq composite index fell 14.16 points, or 0.59 percent, to 2,402.82.