Bloomberg News

Wholesale Prices in U.S. Declined 0.3%, Most in Four Months

November 15, 2011

(Updates with economist’s comment in fourth paragraph.)

Nov. 15 (Bloomberg) -- Prices paid to U.S. wholesalers fell in October by the most in four months as the cost of energy and automobiles decreased, pointing to waning inflation.

The producer price index declined a more-than-projected 0.3 percent after a 0.8 percent gain in September, Labor Department figures showed today in Washington. Economists forecast a 0.1 percent decrease, according to the median of 74 estimates in a Bloomberg News survey. The so-called core measure, which excludes volatile food and energy, was unchanged, marking the first time without an increase since November 2010.

The report showed cheaper raw materials and partially finished goods, indicating companies are under less pressure to raise prices. Cooling inflation gives Federal Reserve policy makers more room to spur the recovery should the world’s largest economy falter.

“We’re seeing slower inflation in the pipeline,” said Sam Bullard, a senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina, who projected a 0.3 percent decline in the PPI. “Slower global growth and weak demand has weighed on commodity prices. Inflation is finally starting to peak and subside now.”

Projections in the Bloomberg survey ranged from a decline of 0.6 percent to an increase of 1 percent. Wholesale prices excluding food and energy costs were projected to rise 0.1 percent.

Stock Futures

Stock-index futures trimmed losses after another report showed stronger-than-forecast retail sales in October. The contract on the Standard & Poor’s 500 Index expiring next month slipped 0.6 percent to 1,244.9 at 8:50 a.m. in New York after tumbling as much as 1.5 percent earlier.

Retail purchases climbed 0.5 percent in October after a 1.1 percent increase a month earlier, Commerce Department figures showed. The median forecast of 81 economists surveyed by Bloomberg was a rise of 0.3 percent. Purchases of electronics jumped by the most in two years.

Compared with October 2010, companies paid 5.9 percent more for goods last month, after a 6.9 percent year-over-year rise in September.

Core wholesale prices rose 2.8 percent in the 12 months ended in October, today’s report showed.

The monthly change in the PPI included a 1.6 percent decrease in the cost of light trucks and a 0.8 percent decline for passenger cars.

The volatility surrounds the introduction of new model-year vehicles and the way the Labor Department adjusts for quality enhancements.

Cheaper Fuel

The cost of energy declined 1.4 percent, led by heating oil, natural gas and gasoline.

Expenses for intermediate goods decreased 1.1 percent following a 0.6 percent gain in September. Prices of crude goods, or raw materials that require further processing, dropped 2.5 percent in October.

Inflation “appears to have moderated since earlier in the year,” Fed officials said in a Nov. 2 statement after their most recent monetary policy meeting.

The Fed’s preferred consumer price gauge, which excludes food and fuel, rose 1.6 percent in September from the same month last year. Fed policy makers aim for long-run overall inflation of 1.7 percent to 2 percent, according to their Nov. 2 forecast.

‘Subdued’ Inflation

Policy makers this month renewed their pledge to hold the benchmark interest rate near zero at least through the middle of 2013 as long as joblessness stays high and the inflation outlook is “subdued.”

Oil futures in October were little changed, helping to keep producer costs in check. Brent crude futures last month averaged $108.79 a barrel, compared with $109.90 in September, according to London’s ICE Futures Europe exchange.

Like the Fed, some companies are seeing limited pressure in materials prices.

“Commodity price inflation and the things that affected us in larger ways last year were copper prices, silver prices,” Theodore Crandall, chief financial officer of Milwaukee-based Rockwell Automation Inc., said in a Nov. 8 conference call with analysts. “Some of those prices have moderated since” the first three months of this year, he said.

Producer prices, one of three monthly inflation gauges reported by the Labor Department, are calculated based on costs on the Tuesday of the week containing the 13th of the month, which may influence month-to-month changes.

Prices of goods imported into the U.S. fell 0.6 percent in October, Labor Department data showed last week.

Consumer prices, the broadest of the three measures, are due tomorrow. Economists in the Bloomberg survey predict the cost of living was little changed in October, the first month without a gain since June, according to the median.

--Editor: Vince Golle

To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net

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


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