Wholesale Prices in U.S. Rise Most in Three Years as Oil Surge

Wholesale prices in the U.S. increased in August by the most in more than three years, reflecting a surge in energy costs.

The producer price index climbed 1.7 percent after an increase of 0.3 percent in July, the Labor Department reported today in Washington. The median estimate in a Bloomberg survey of 79 economists called for a 1.2 percent gain. Core wholesale inflation, which excludes volatile food and energy prices, rose 0.2 percent, in line with forecasts.

Companies may find it difficult to pass on higher energy costs as the global economic slowdown and so-called fiscal cliff of higher taxes and government spending cuts prompt their customers to limit spending. The absence of broad-based price increases gives Federal Reserve policy makers, who meet today, room to provide more monetary stimulus for the economy.

“Given the slowing in the overall economy and the global economy including China, there’s probably less inflationary pressures just in general,” Kevin Cummins, an economist at UBS Securities LLC in Stamford, Connecticut, said before the report. “That probably is another reason not to expect a big spike in inflation going forward.”

The gain in producer prices was the biggest since June 2009 and reflected the biggest jump in energy costs in three years.

Economists’ estimates for producer prices ranged from increases of 0.1 percent to 2 percent. Core wholesale prices were projected to climb 0.2 percent, the Bloomberg survey showed.

Compared with a year ago, companies paid 2 percent more for goods, after a 0.5 percent gain in the 12 months ended in July. The core index increased 2.5 percent in the year ended in August, matching the rise a month earlier.

Energy Costs

Fuel costs surged 6.4 percent from the prior month after five straight declines. Gasoline prices advanced 13.6 percent, while home heating oil costs increased 10.8 percent, the most since October 2010.

The cost of finished consumer foods rose 0.9 percent, the biggest gain since November and reflecting higher prices for eggs, vegetables and dairy products.

Prices of passenger cars decreased 0.2 percent, while costs declined for furniture, computers and footwear.

Expenses for intermediate goods increased 1.1 percent, and those for crude goods jumped 5.8 percent. Intermediate, or semi- finished, goods excluding energy and food decreased 0.2 percent in August, the fourth straight decline.

Consumer Prices

The producer price index is one of several inflation measures monitored by the Fed. The consumer price index, due tomorrow, is projected to increase 0.6 percent, according to the median estimate in a Bloomberg survey of economists.

The Fed may announce today a third round of bond purchases, according to almost two-thirds of economists in a Bloomberg survey, while also extending the duration of its zero-interest- rate policy into 2015.

More quantitative easing intended to boost the expansion could prompt inflation pressures. Fed officials in June forecast that by late 2014 the jobless rate would still be above their full-employment estimate of 5.2 percent to 6 percent, with inflation not rising above their goal of 2 percent.

At the same time, the worst U.S. drought in 50 years that pushed up grain prices will drive up some input costs.

“We have started to hear from some of the big vendors about price increases -- we do believe they are real,” Robert Moran, chairman and chief executive officer of Phoenix-based pet product supplier PetSmart Inc. (PETM), said at a Sept. 6 conference. “They are not driven by speculative markets, they are driven by the droughts and increased commodity prices that are probably here to stay for a while.”

To contact the reporters on this story: Michelle Jamrisko in Washington at mjamrisko@bloomberg.net; Shobhana Chandra in Washington at schandra1@bloomberg.net

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