Wholesale prices in the U.S. climbed in May for the first time in three months, reflecting an increase in fuel and food prices that failed to filter through to other goods.
The producer-price index rose 0.5 percent after falling 0.7 percent in April, which was the biggest drop in more than three years, according to a Labor Department report released today in Washington. The median estimate in a Bloomberg survey of 76 economists projected the index would gain 0.1 percent. So-called core wholesale inflation, which excludes often-volatile food and energy prices, increased 0.1 percent.
The recession in Europe and slowing growth in emerging markets such as China may continue to restrain commodity costs, damping global inflation. The lack of price pressures means Federal Reserve policy makers may continue to consider the possibility that the economy needs additional stimulus to spur the expansion.
“There’s just a lack of any inflationary pressures across the economy,” said Stuart Hoffman, chief economist at PNC Financial Services Group, Inc. in Pittsburgh, Pennsylvania, who correctly forecast the gain in producer prices. “From the Fed’s point of view, I think that the fact that it’s a bit higher than expected doesn’t in any way change the view that inflation is still quite low, quite tame.”
Stock-index futures held earlier losses after the report. The contract on the Standard & Poor’s 500 Index maturing in September fell 0.1 percent to 1,629.3 at 8:43 a.m. in New York.
Another report showed the current-account deficit widened in the first quarter, aided by a jump in imports. The gap, the broadest measure of international trade because it includes income payments and government transfers, widened 3.7 percent to $106.1 billion from a revised $102.3 billion shortfall in the prior quarter, according to Commerce Department figures.
Economists’ estimates for the May producer-price index ranged from a drop of 0.5 percent to a gain of 0.7 percent. The increase in core wholesale prices matched the median forecast in the Bloomberg survey.
Compared with a year ago, companies paid 1.7 percent more for materials in May. The core price index also advanced 1.7 percent in the past 12 months, the same as in the prior month, today’s report showed.
Energy costs increased 1.3 percent in May from the previous month, reflecting broad-based gains that included heating oil, natural gas and gasoline.
The cost of finished consumer foods rose 0.6 percent as the price of fresh eggs jumped by a record 41.6 percent.
About two-thirds of the 0.1 percent increase in core prices was linked to a 0.4 percent advance in the cost of light trucks. That was mostly offset by a 0.5 percent drop in passenger cars.
Expenses for intermediate goods, which include diesel fuel, chemicals and other inputs used in the production of other goods, decreased 0.1 percent, the third consecutive decline. Costs for crude goods, such as corn and metals, climbed 2.2 percent, the first increase since February.
Fed officials meeting June 18-19 in Washington will weigh how much changes in inflation and the labor market will influence the pace of their $85 billion in monthly asset purchases. Federal Reserve Bank of St. Louis President James Bullard said June 10 that inflation below the central bank’s 2 percent target may warrant prolonged “aggressive” bond buying.
While “labor market conditions have improved since last summer,” Bullard said in remarks during a panel discussion in Montreal, “surprisingly low inflation readings may mean the Committee can maintain its aggressive program over a longer time frame.”
Prices climbed 1.1 percent in the 12 months through April, according to a Commerce Department measure watched by the Fed that excludes food and fuel -- matching the smallest increase since records began in 1960.
Lower costs are helping companies such as Delta Air Lines Inc. (DAL:US) boost margins. The world’s second-largest carrier this week increased the lower end of its operating-margin forecast for this quarter on strong travel demand and lower jet-fuel expenses.
“Over the longer term, our expectation is cost inflation will be well within bounds of general inflation,” Delta President Ed Bastian said yesterday at a conference hosted by Deutsche Bank in Chicago. “We’re expecting longer term, our non-fuel cost growth to be in that zero to 2 percent range.”
The producer-price index is one of three monthly inflation gauges released by the Labor Department. The import-price index, published yesterday, dropped 0.6 in May, reflecting broad-based declines. The consumer-price index, due next week, is expected to increase 0.2 percent, the first gain in three months, according to the median estimate in a Bloomberg survey of economists.
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