Inflation tame; trade gap falls

WASHINGTON -- US producer prices, excluding energy costs, slipped slightly last month, and the US trade deficit narrowed unexpectedly in July.

Economists, however, said Hurricane Katrina probably means greater price pressure and wider trade gaps ahead. The storm has taken a toll on consumer confidence, according to several surveys, and analysts said it would be some time before a clearer view of the economic outlook emerges.

The producer price index, a gauge of prices received by farms, factories, and refineries, shot up 0.6 percent last month as energy prices climbed 3.7 percent, the Labor Department said yesterday in a report unaffected by Katrina. Stripping out the rise in energy costs, prices fell 0.1 percent. The so-called core index, which strips out both food and energy prices, was unchanged.

Separately, the Commerce Department said the US trade deficit shrank 2.6 percent to $57.9 billion in July as exports hit an all-time high.

Economists said the narrowing in the trade deficit would likely prove temporary, with higher oil prices and a need to step up oil imports to offset a hurricane-related loss of domestic production poised to push the gap wider again.

Economists polled by Reuters saw growth taking a hit from Katrina in the months ahead before rebounding. The survey of 23 economists cut the growth forecast to 3.6 percent in the third quarter and 3.1 percent in the fourth, vs. pre-Katrina estimates of 4.3 and 3.4.

Such concerns pushed US consumer confidence to the weakest reading since June 2004, according to an ABC News/Washington Post poll. Their Consumer Comfort Index fell to -20 in the week ended Sunday from -14 the prior week.