By Timothy R. Homan Oct. 15 (Bloomberg) -- Prices paid to U.S. producers fell in September for a second consecutive month on lower fuel costs, while the rate excluding food and energy rose more than economists forecast. The 0.4 percent drop followed a 0.9 percent decline in August, the Labor Department said today in Washington. So-called core producer prices that exclude fuel and food increased 0.4 percent from a month earlier, double economists' projections. Falling oil prices and weaker consumer spending are making it harder for American companies to raise prices, giving the Federal Reserve scope to cut interest rates. Still, the costs for food and other household goods are higher than a year ago. ``Producer prices will come down because of the decline in energy prices,'' Russell Price, a senior economist at H&R Block Financial Advisors Inc. in Detroit, said before the report. ``As long as energy prices continue to moderate, I think we should see that downside pressure also.'' Prices paid to factories, farmers and other producers were forecast to decline 0.4 percent, according to the median of 73 forecasts in a Bloomberg News survey. Estimates ranged from a drop of 1.5 percent to a 0.2 percent gain. Core prices were projected to rise 0.2 percent, according to the survey median. Producers paid 8.7 percent more for goods from September 2007, compared with a 9.6 percent gain in the 12 months ended in August. Inflation Signals Excluding food and energy, the increase was 4 percent from a year earlier, the biggest year-over-year jump since 1991, after a 3.6 percent 12-month increase in the prior month, the government report showed. Producer prices are one of three monthly inflation gauges reported by the Labor Department. Import costs fell in September by the most in more than five years, Labor figures showed last week. Consumer prices, due tomorrow, may rise 0.1 percent after falling by that amount in August, a Bloomberg survey shows. In today's producer price report, food was 0.2 percent costlier, after rising 0.3 percent in August. Producers paid 0.5 percent less for gasoline and 6.4 percent less for diesel fuel. Residential natural gas costs dropped 8.2 percent from the prior month, the steepest drop since October 2006. The wholesale-price report is based on figures for the Tuesday of the week that includes the 13th of the month. On that basis, crude oil costs on the New York Mercantile Exchange were down almost 9 percent in September from the prior month. Oil, which reached a record $147.27 a barrel on July 11, fell below $80 this week on the New York Mercantile Exchange. Cars, Capital Goods Costs of intermediate goods, those used in earlier stages of production, fell 1.2 percent from August. Excluding food and energy, intermediate prices dropped 0.3 percent. Prices for raw materials, or so-called crude goods, declined 7.9 percent, following an 11.9 percent drop the prior month. Passenger car prices rose 0.5 percent after falling 0.3 percent a month earlier, and light trucks increased 1 percent after falling 1.9 percent in August. Prices for capital equipment gained 0.5 percent and consumer goods prices decreased 0.6 percent. Lower prices are hurting company earnings. Alcoa Inc., the largest U.S. aluminum producer, last week fell the most in more than 20 years after its third-quarter profits fell short of analyst estimates. ``Aluminum prices have fallen steeply and demand has softened further,'' Klaus Kleinfeld, chief executive officer of the New York-based company, said in an Oct. 7 statement. ``The resulting margin squeeze will have a greater impact going forward, but will be somewhat mitigated by the easing of energy prices and a stronger U.S. dollar.'' To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net

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