AP News

Ahead of the Bell: US Producer Price Index

WASHINGTON (AP) — The Labor Department reports on U.S. producer price inflation in January. The report will be released at 8:30 a.m. Eastern Wednesday.

SMALL INCREASE LIKELY: Economists forecast that the producer price index rose 0.2 percent in January, according to a survey by FactSet. That would be the second straight increase after two months of declines. The index measures the cost of goods and services before they reach the consumer.

HIGHER FOOD, CONSTRUCTION PRICES: Higher costs for food and construction likely pushed up the overall index, according to economists at JPMorgan Chase. Gas and energy prices probably fell.

The figures should echo other data that shows inflation is mild. In the past two years it has actually fallen, posing a challenge for Federal Reserve policymakers. The producer price index rose just 1.2 percent in 2013 after a 1.4 percent increase in 2012. Both figures are far below the Fed's preferred target of 2 percent.

Businesses have struggled to raise prices because of historically high levels of unemployment and meager wage growth. That's made it harder for consumers to pay more. And with unemployment high, those with jobs are less able to demand higher pay.

Low inflation has enabled the Federal Reserve to pursue extraordinary stimulus programs to try and boost economic growth.

The Fed is now trying to unwind some of that stimulus. It cut its monthly bond purchases to $65 billion this month, from $75 billion in January and $85 billion last year. The bond purchases are aimed at lowering long-term interest rates to encourage more borrowing and spending.

But Fed policymakers have expressed concern about the persistence of low inflation. If it remains below target, the Fed could extend its stimulus efforts.

BROADER INDEX: January's report will be the first to include major changes in the way the government calculates the producer price index. The changes will make it more comprehensive by covering services and construction. Previously, it only covered the cost of goods. It is the first change to the index in 35 years.

The changes will double the index's coverage to 75 percent of the economy.

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