By Courtney Schlisserman Aug. 17 (Bloomberg) -- Wholesale costs in the U.S. increased in July for the first time in four months, signaling slower growth is not resulting in deflation, or a protracted drop in prices that hurts the economy. The producer price index increased 0.2 percent following a 0.5 percent drop in June. A measure excluding volatile food and energy costs climbed 0.3 percent, more than projected and the biggest gain since January. While commodity prices remain above year-earlier levels, the slowing economy gives companies little room to pass on costs and will keep overall prices contained. A lack of inflation or deflation gives Federal Reserve policy makers room to leave the benchmark interest rate near zero to help boost growth. “Deflation risks are not yet materializing,” Zach Pandl, an economist at Nomura Securities International Inc. in New York, said before the report. Economists forecast producer prices would rise 0.2 percent, according to the median of 75 projections in a Bloomberg News survey. Estimates ranged from a 0.2 percent decrease to an increase of 0.6 percent. Excluding food and energy, prices were projected to increase 0.1 percent, according to the Bloomberg survey. Almost half of last month’s increase in core prices was due to a 1.5 percent jump in the cost of light trucks like SUVs and pickups, the Labor Department said. Rising prices for pharmaceuticals and automobiles also contributed to the gain. Compared with a year earlier, companies paid 4.2 percent more for goods in July after rising 2.8 percent in June. Core Rising Excluding food and energy, wholesale prices climbed 1.5 percent in the 12 months ended in July, the biggest year-over- year gain since September. The cost of food increased 0.7 percent in July, while energy prices dropped 0.9 percent led by cheaper gasoline. Producer prices are one of three monthly inflation gauges reported by the Labor Department. Figures last week showed prices of goods imported into the U.S. rose 0.2 percent in July, the first increase in three months. Consumer prices, the broadest of the three measures, increased 0.3 percent, the first gain in four months. Fed officials last week left the overnight interbank lending rate target in a range of zero to 0.25 percent, where it’s been since December 2008. High unemployment, low inflation and stable price expectations “are likely to warrant exceptionally low levels of the federal funds rate for an extended period,” the central bank said, repeating language from every policy meeting since March 2009. Costs in Pipeline Prices of intermediate goods dropped 0.4 percent in July and were up 6.4 percent compared with a year earlier, today’s report showed. Prices of crude goods increased 2.7 percent last month and were up 21 percent from a year ago. Some companies’ profits are increasing because of higher materials prices. Southern Copper Corp. said Aug. 12 that rising prices and the restart of the world’s largest copper mine after a three-year stoppage will bolster earnings this year. “Prices will rise for copper, as well as gold, zinc and lead,” Chief Executive Officer Oscar Gonzalez Rocha said in an interview. A three-year strike at the company’s Cananea mine had depressed prices, he said. To contact the reporter on this story: Courtney Schlisserman at cschlisserma@bloomberg.net

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