Producer Prices Drop, Giving Fed More Space

Producer prices unexpectedly fell in April as energy costs dropped by the most in six months, a sign of easing inflation pressures that could give the Federal Reserve more room to help the economy should growth weaken.

The Labor Department said on Friday its seasonally adjusted producer price index dropped 0.2 percent last month. That was the first drop of the year and the biggest decline since October.

"Looking ahead consumer prices should remain contained," said Michelle Meyer, an economist at Bank of America Merrill Lynch in New York. "The Fed shouldn't be worried about inflation."  A rise in gasoline prices last year pinched consumers and fueled higher inflation, but the Fed has maintained that the spike would be temporary. A report on consumer prices due next week is expected to give further signs that inflation is ebbing.

Still, the annual inflation rate targeted by the Fed continues to hover around the central bank's 2 percent goal, and Friday's price data did not appear to change investor's views on the outlook for monetary policy.

Futures for U.S. stocks held at lower levels, depressed by a revelation from JPMorgan that it suffered a trading loss of at least $2 billion. U.S. Treasury yields fell as uncertainty over Greece's political future underpinned demand for safe-haven debt.

A number of Fed officials appear loath to take further action to help the economy, with some arguing the central bank needs to get ready to being withdrawing its extraordinary stimulus. The Fed has maintained since January that it expects economic conditions to warrant holding overnight interest rates near zero through at least late 2014.

The report on producer prices for April showed wholesale prices 1.9 percent higher in April than a year earlier, the weakest reading since October 2009.