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PPI Slips for the First Time in Four Months

Retail sales rose just slightly.

In an indication that the economy may be starting to cool down, wholesale prices fell and retail spending growth eased last month, according to new data.

Wholesale prices posted their first decline of the season in August, as food and energy prices dropped. But any decrease in prices wasn't enough to boost back-to-school sales as much as retailers had hoped, with nationwide retail spending growing just slightly last month.

According to data released Thursday by the

Labor Department,

the

Producer Price Index

for finished goods fell overall by 0.2% in August -- the first decline in four months. Excluding food and energy prices, the core index rose a modest 0.1%. Economists surveyed by

Thomson Global Financial

had forecast a slight increase of 0.2% for the overall and core prices.

Meanwhile, August

retail sales

rose just 0.2% from the previous month, to $271.2 billion, according to data released Thursday by the

Commerce Department

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. Sales were 7% higher than in August of 1999.

Durable goods were unchanged from the month before, but 4.5% higher than a year earlier -- due primarily to year-over-year increases in furniture and automotive sales of 6.6% and 3.3% respectively.

Nondurable goods increased 0.3% from July but 8.9% from August 1999, with drugstore sales up 10.6% from last year and gasoline sales up a whopping 16.6%. That may be due in part to an easing in gasoline prices over the past two months, with the gasoline index falling 2.8% in August from the previous month, after a 9.1% drop in July.

Lower energy prices also contributed to the overall decline in producer prices, as cheaper gas offset increases in home heating oil prices. Prices for beef and fresh fruit also fell at a faster pace last month than they had in July, more than offsetting a 19.4% increase in the price of eggs.

Outside of volatile food and energy prices, government officials said the increased cost of cigarettes, prescription drugs, mobile homes and book publishing outweighed decreases in the price of cars, household appliances, alcoholic beverages, and sanitary paper products to account for the slight increase in the core index.

Despite the modest decline in overall PPI numbers last month, analysts say the index is likely to grow in September, reflecting rising energy costs. Energy prices soared to10-year highs this month, despite assurances of increased output by the

Organization of Petroleum Exporting Countries

. Even if energy prices ease by month's end, analysts say it won't keep the PPI index from climbing.

With energy prices increasing and the core PPI up already, Thorsten Fischer, an economist at

Economy.com

, said he expects PPI growth to accelerate this month.

Nonetheless, August's unexpected decline in wholesale prices and in spending growth increases hope among economists that the

Federal Reserve

may have finished raising rates for the year. The nation's central bank has boosted interest rates a half-dozen times in the past 15 months in an attempt to slow the economy and ease inflationary pressures.