WASHINGTON, Aug 19: A pair of troubling US economic reports released Tuesday showed wholesale prices had spiked dramatically in the past year while new home construction slumped heavily last month. The two separate government surveys, one of which showed wholesale prices had surged by their largest margin in 27 years in the year to July, dragged down US financial markets as investors worried about already fragile economic growth. The Labour Department reported that its producer price index (PPI), a key gauge of inflation at the wholesale level, rose by a hefty 9.8 per cent in July from a year ago.

That marked the biggest surge in annualized headline prices at the factory and farm gate since a 10.4 per cent gain was recorded in June 1981.

The reading will likely not be welcomed by the Federal Reserve, which has been waging a campaign against inflationary pressures, but Fed policymakers expect inflationary pressures to ebb in coming months, especially as world oil prices have cooled markedly of late.

The core PPI rate, which strips out volatile energy and food costs, has increased by 3.5 per cent over the past 12 months, marking the largest surge in the annualized core reading since May 1991. On a monthly basis, overall prices rose by a more-than-expected 1.2 per cent in July against market forecasts which had predicted a rise of 0.4 per cent. The core rate rose by a more-than-anticipated 0.7 per cent in July from June.

Economists said the surge in the core reading suggests producers may be trying to pass on increased costs through the price-chain as they vie to absorb rising commodity and material prices which have swept through the economy.

This could further stretch consumers’ wallets which are already being stressed by a continuing credit crunch and a long-running housing market slump.

The markets got a fresh reminder of the ongoing woes afflicting the housing industry as a Commerce Department report showed that new home construction across the United States plunged 11 per cent in July to the lowest level in 17 years.

After an unexpected rise in construction in June, home building fell to an annualized pace of 965,000 units, the report showed.—AFP