Bloomberg News

Wholesale Prices in U.S. Increase by Most in Five Months

March 15, 2012

An attendant displays a fuel pump for a photograph at a gas station in the Brooklyn borough of New York. Photographer: Victor J. Blue/Bloomberg

An attendant displays a fuel pump for a photograph at a gas station in the Brooklyn borough of New York. Photographer: Victor J. Blue/Bloomberg

Wholesale prices in the U.S. climbed in February by the most in five months, reflecting a jump in fuel costs that Federal Reserve officials project will be temporary.

The producer price index rose 0.4 percent following a 0.1 percent increase the prior month, Labor Department figures showed today in Washington. Economists projected a 0.5 percent gain, according to the median estimate in a Bloomberg News survey. The core measure excluding volatile food and energy rose 0.2 percent, less than in the prior month.

Rising energy costs may make it more expensive to manufacture goods, restraining profits as companies find it difficult to pass the increases to customers. Fed policy makers this week projected they’ll keep interest rates low at least until late 2014, predicting inflation will remain in check.

“There has not been a significant amount of price pressure at the producer level that would suggest they’ll have to increase prices anytime soon,” said Kevin Cummins, an economist at UBS Securities LLC in Stamford, Connecticut, and the third most accurate forecaster of wholesale prices.

Projections in the Bloomberg survey ranged from increases of 0.2 percent to 1 percent.

Core wholesale prices were projected to rise 0.2 percent following the prior month’s 0.4 percent gain, the Bloomberg survey showed.

Fewer Claims

Another report from the Labor Department showed claims for jobless benefits dropped last week, matching the lowest level in four years, more evidence the labor market is improving.

Applications for unemployment insurance payments fell by 14,000 to 351,000 in the week ended March 10, less than forecast. Claims reached the same level a month ago, the lowest since March 2008.

Manufacturing in the New York region expanded in March at the fastest pace since June 2010, another report showed. The Federal Reserve Bank of New York’s general economic index unexpectedly increased to 20.2 this month from 19.5 in February. Readings greater than zero signal expansion in the so-called Empire State Index, which covers New York, northern New Jersey and southern Connecticut.

Stock-index futures held earlier gains after the reports. The contract on the Standard & Poor’s 500 Index maturing in June climbed 0.2 percent to 1,391.8 at 8:47 a.m. in New York.

Inflations Cools

In the 12 months ended February 2012, companies paid 3.3 percent more for goods, the smallest year-over-year gain since August 2010. The core index increased 3 percent over the past year, the same as in January.

The gain in wholesale costs was led by a 1.3 percent increase in energy. Food prices dropped 0.1 percent, led by a 7.3 percent decline in vegetable expenses, the report showed.

About 30 percent of the increase in core prices in February was attributable to a 0.6 percent gain in the cost of pharmaceuticals, the report said. Higher costs for civilian aircraft and for medical supplies also contributed.

The price pressure businesses face from more expensive energy will probably fade, according to the Fed.

“Inflation has been subdued in recent months although prices of crude oil and gasoline have increased lately,” the Federal Open Market Committee said in a statement following a March 13 meeting. Oil will “push up inflation temporarily, but the committee anticipates that subsequently inflation will run at or below the rate that it judges most consistent with its dual mandate” of stable prices and maximum employment.

Fed Policy

The central bank didn’t change its statement that economic conditions probably warrant “exceptionally low” lending rates at least through late 2014. In December 2008, the Fed lowered its target overnight interest rate to a range of zero to 0.25 percent.

“While we saw some favorability in wax prices in the latter part of 2011 given the recent moves in the price of oil, we remain cautious of the potential for further wax inflation, and continue to work aggressively on various cost containment,” Harlan Kent, chief executive officer of Yankee Candle Co. Inc., which sells its products to retailers like Macy’s and Target Corp., said on March 1 conference call. “We have no current plans to take additional price.”

Less Inflation

Price pressures cooled all the way down the production line, according to today’s data. The cost of intermediate goods rose 3.3 percent over the past 12 months, down from 4.2 percent in January. Crude prices climbed 0.7 percent since February 2011, compared with a 4.5 percent increase in the 12 months to January.

Producer prices are one of three monthly inflation gauges reported by the Labor Department. The consumer price index, due tomorrow, rose 0.4 percent in February after a 0.2 percent gain the prior month, according to the median estimate in the Bloomberg survey.

The cost of goods imported into the U.S. rose 0.4 percent last month, reflecting more expensive 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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