Bloomberg News

WASHINGTON - U.S. producer prices, excluding food and energy, unexpectedly declined in June for the first time in five months as costs fell for cars, fruits and vegetables, and paper products, the government reported Friday.

The core rate of the producer price index fell 0.1% last month - the first decline since January - after rising 0.2% in May. Overall, producer prices for finished goods rose 0.6% - as expected - after showing no change in May.

"You're still seeing little inflation pressure outside of energy," said Cary Leahey, economist at Deutsche Bank Securities Inc. in New York.

A surge in the cost of natural gas and petroleum products pushed up the overall index, which posted its biggest gain since March. Higher energy costs were said to reflect a lack of supply.

U.S. Treasury securities fell after a separate report by the Commerce Department showed stronger-than-expected retail sales in June. Retail sales rose 0.5% last month, and May's retail sales were revised to a 0.3% gain from a previously reported decline.

Also, industrial production rose 0.2% in June after a 0.5% increase in May, the Federal Reserve reported Friday.

Through June, the overall wholesale price index rose at a 4.8% annual rate, compared with a 2% pace for the first half of 1999. The core rate increased at a 1% rate. Through June 1999, the core rate was unchanged.

Producer energy prices rose 5.1% in June after falling 0.5% the previous month. A 17% jump in the cost of liquefied petroleum gas and a record 5.7% increase in natural gas prices led the increase. The cost of gasoline rose 11.8%.

Food prices fell 0.3% after a 0.2% decline in May. The cost of fruits and vegetables fell; the cost of eggs rose.

Passenger car prices fell 0.5%, after rising 0.9% in May. The cost of paper products such as tissues declined 1.3% last month, and cigarette prices dropped 1.8%.

Intermediate goods prices increased 0.9% last month after falling 0.1% in May. Intermediate goods prices excluding food and energy rose 0.2%, after rising 0.1% the previous month.

Federal Reserve policymakers held the overnight bank lending rate steady at 6.5% last month - a nine-year high -saying six interest rate increases in the past year may be slowing the pace of economic growth. Some statistics on labor markets, manufacturing, and consumer spending also suggest demand may be cooling.

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