WASHINGTON - Falling energy prices helped hold inflation in check at the wholesale level last month as Americans increased their buying at a faster pace than expected.
Taken together, Friday's two economic reports could persuade the Federal Reserve to leave interest rates unchanged when policy-makers meet later this month, economists said.
''It's the best of all worlds - strong growth, minimal inflation and the Fed more than likely on the sidelines at least through the elections,'' said Joel Naroff of Naroff Economic Advisors.
The good economic news powered the Dow Jones industrial average to its best close in four months. The Dow finished the day up 119.04 at 11,027.80, the first time it has closed above the 11,000 threshold since April 25.
In one report, the Labor Department said that after a jump in June caused by soaring energy costs, July's Producer Price Index for inflation at the wholesale level remained unchanged.
The flat showing on the index, which measures inflation before it reaches the consumer, meant a significant easing of price pressures after the hefty 0.6 percent surge in June.
The turnabout resulted from a big swing in gasoline and other energy costs, down by 0.7 percent in July after a 5.1 percent jump the month before.
July's no-increase performance for wholesale prices was better than economists had expected. They had been looking for a small 0.1 percent rise.
The news also was good after volatile food and energy costs were excluded. The so-called core rate of inflation was up just 0.1 percent in July, after a 0.1 percent fall in June.
So far this year, inflation at the wholesale level has risen at an annual rate of 4.1 percent, an acceleration from a 2.9 percent rise in wholesale prices for all of 1999.
However, the speedup was caused by the surge in energy prices. Excluding energy and food, wholesale prices have risen a very moderate 1.1 percent, basically unchanged from last year's 0.9 percent increase in core inflation.
''The spike in energy prices has failed to set off a wider acceleration in inflation,'' said National Association of Manufacturers economist Gordon Richards. ''Once the surge in energy costs is over - and it is probably over already - the inflation rate should move back on a trend of less than 2 percent a year.''
In a second report, the Commerce Department said retail sales rose a substantial 0.7 percent in July, propelled by sharp gains in purchases of autos and other big-ticket items.
The uptick in consumer buying followed a 0.4 percent rise in June and pushed sales 8.1 percent above July a year ago.
Durable goods increased 1.2 percent from June and were 6.3 percent above last year. That included furniture and home furnishing sales 1.3 percent above June's and automotive sales 1.1 percent higher.
''Although the July bounce is quite strong, it should not rock the boat in terms of the Fed,'' said David Orr, chief economist at First Union Securities Inc.
''It's the combination of the two that is such good news - firm sales in conjunction with very stable price levels,'' said Paul Taylor, chief economist at the National Automobile Dealers Association.
The Fed has raised interest rates six times over 14 months in an effort to slow the economy enough to keep inflation in check.
When the government two weeks ago reported that instead of slowing, the economy actually accelerated in the July-September quarter, growing at a robust 5.2 percent rate according to preliminary figures, it set off alarm bells that the Fed would feel the need to boost rates for a seventh time.
Since that scare, later signals have shown the economy starting to slow this quarter, including last week's report that unemployment held steady at a 4 percent rate in July, while private job growth slowed significantly.
Other details of Friday's inflation reports included:
-A 9.1 percent decline in gasoline prices, the biggest drop since a decline of 10 percent in April.
-A 6.2 percent rise in natural gas prices, 2 percent rise in residential electric power prices and 1.3 percent decline in home heating oil costs.
-Food costs were flat after two consecutive monthly declines. Prices were held back last month by big declines in the costs of eggs, fruit and vegetables. Beef prices also were down by 1.4 percent, their biggest decrease since last November.
-Outside of food and energy, new car prices were down 0.5 percent, small truck prices 0.1 percent, the best automotive showing since a 0.8 percent drop in January.
On the Net: PPI report: http://stats.bls.gov/ppihome.htm
Retail sales report: http://www.census.gov/svsd/www/advtable.html