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Wholesale Prices in U.S. Rise More Than Forecast on Fuel

By Alex Kowalski
October 12, 2012 8:47 AM EDT 4 Comments
The increase in the producer price index was led by a 4.7 percent jump in energy prices.
Photographer: Eddie Seal/Bloomberg
The increase in the producer price index was led by a 4.7 percent jump in energy prices.

Wholesale prices in the U.S. rose more than forecast in September, reflecting a jump in fuel costs that failed to trickle down to other goods.

The producer price index climbed 1.1 percent after a 1.7 percent gain in August, the Labor Department reported today in Washington. The median estimate in a Bloomberg survey of 76 economists called for a 0.8 percent increase. So-called core producer inflation, which excludes volatile food and energy prices, was unchanged, the first time it didn’t increase since October 2011.

Facing a global economic slowdown, businesses may have difficulty passing higher energy costs onto customers, keeping a lid on prices. In addition, weak demand from abroad and in the U.S. will probably prevent the cost of raw materials from flaring, limiting inflation pressures and allowing the Federal Reserve to focus on jump-starting employment growth.

“Inflation is still non-problematic,” said Avery Shenfeld, chief economist at the Canadian Imperial Bank of Commerce in Toronto, who correctly forecast the jump in the price index. “The Fed has made clear that getting unemployment down is priority number one as long as inflation is reasonably contained, and we don’t see anything that’s going to shift that in the near term.”

Stock-index futures held earlier gains after the report. The contract on the Standard & Poor’s 500 Index maturing in December rose 0.2 percent to 1,431.7 at 8:46 a.m. in New York. Treasury securities dropped, erasing earlier gains and bringing the yield on the benchmark 10-year note to 1.66 percent, little changed from 1.67 percent late yesterday.

Survey Results

Economists’ estimates for the price index ranged from an unchanged reading to a gain of 1.7 percent. Core prices were projected to climb 0.2 percent, the Bloomberg survey showed.

Compared with a year ago, companies paid 2.1 percent more for inputs after paying 2 percent more in the 12 months ended August. The core index increased 2.3 percent in the year ended in September, the smallest 12-month advance since June 2011.

The increase in the producer price index was led by a 4.7 percent jump in energy prices. The cost of gasoline climbed 9.8 percent, while diesel fuel surged 9.2 percent, the most since December 2010, the report showed.

Core prices were restrained by a 0.7 percent drop in the cost of communications gear, the biggest decrease in more than eight years. Prices for computers and related equipment dropped 1.5 percent, the most since August 2011, helping to offset a 0.3 percent gain in light motor trucks.

Production Line

Price pressures bubbled up all the way down the production line reflecting the cost of fuel, according to today’s data. The price of intermediate goods climbed 1.5 percent, and crude costs rose 2.8 percent.

“In regards to inflation, we have seen rising costs in commodity-related products throughout the year although at lower levels than last year,” William Giles, chief financial officer at AutoZone Inc. (AZO), said during a Sept. 19 earnings call. “We expect subdued producer pricing heading into the new year, and therefore we feel costs will be predictable and manageable.”

With subdued inflation, the Fed can focus on the other part of its dual mandate: achieving full employment. The central bank said Sept. 13 it would buy $40 billion of mortgage bonds a month until the U.S. sees what Chairman Ben S. Bernanke described as an “ongoing, sustained improvement in the labor market.” The Fed also said it would probably hold its target lending rate near zero at least through mid-2015.

Fed’s View

“Members generally continued to anticipate that, with longer-term inflation expectations stable and given the existing slack in resource utilization, inflation over the medium term would run at or below the Committee’s longer-run objective of 2 percent,” according to the minutes of the Federal Open Market Committee’s Sept. 12-13 meeting.

Producer prices are one of three monthly inflation gauges reported by the Labor Department. The consumer price index, due Oct. 16, rose 0.5 percent in September following a 0.6 percent gain the prior month, according to the median estimate in the Bloomberg survey. The cost of goods imported into the U.S. rose 1.1 percent last month, reflecting higher fuel costs, Labor Department data showed yesterday.

To contact the reporter on this story: Alex Kowalski in Washington at akowalski13@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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