Led by fuel and trucks, the 1.8% rise in wholesale prices was more than twice as large as predicted
By Timothy R. Homan
(Bloomberg) — Wholesale prices in the U.S. increased more than anticipated in November, led by a jump in fuel costs and a rebound in truck prices.
The 1.8 percent increase in prices paid to factories, farmers and other producers was more than twice as large as anticipated and followed a 0.3 percent gain in October, according to Labor Department data released today in Washington. Excluding food and fuel, so-called core prices also exceeded the median estimate of economists surveyed by Bloomberg News.
Near-record excess capacity and a jobless rate that is projected to average 10 percent in 2010 may prevent suppliers from passing on a rebound in commodity costs even as the economy recovers. Federal Reserve policy makers, meeting this week, have said they expect inflation to remain "subdued" in coming months, allowing them to keep interest rates low.
"Competition is brutal," said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc., a New York forecasting firm, who forecast producer prices would rise 1.2 percent. "If somebody raises their prices, someone else won't. We're squarely in the disinflationary camp. There is way too much spare capacity."
Factories in the New York region expanded in December less than anticipated, indicating manufacturing may provide less of thrust for the economy in coming months, figures from the Fed Bank of New York also showed today. The bank's general economic gauge, known as the Empire State Index, fell to a five-month low of 2.6 from 23.5 in November. Readings greater than zero signal expansion.
Stock-index futures dropped after the reports. The contract on the Standard & Poor's 500 Index was down 0.4 percent to 1,103.7 at 8:54 a.m. in New York. Treasury securities also decreased.
Economists forecast prices would rise 0.8 percent, according to the median of 77 projections in a Bloomberg News survey. Estimates ranged from increases of 0.3 percent to 1.6 percent.
Prices excluding food and energy were forecast to rise 0.2 percent after a 0.6 percent drop in October that was the largest decline in more than three years, according to the survey median.
Compared with a year earlier, wholesalers received 2.4 percent more for their goods, the first year-over-year increase since November 2008, today's report showed. Core costs were 1.2 percent higher than a year earlier.
Continue to Climb
Year-over-year costs will probably climb in coming months as the plunge in fuel prices at the depths of the recession in late 2008 drops out of the calculations.
Compared with October, energy costs rose 6.9 percent, led by an 18 percent gain in the cost of heating oil. The cost of crude has since dropped.
The cost of food increased 0.5 percent from October, led by gains in fruits and vegetables.
About 75 percent of the gain in producer prices last month reflected increase in food and fuel costs, the Labor Department said. The increase in core costs mainly reflected a 4.2 percent jump in light truck prices that followed a 5.2 percent drop in October. Vehicle costs often become volatile when the government switches to tracking new models.
Producer prices are one of three monthly inflation gauges reported by the Labor Department. The cost of imported goods rose 1.7 percent in November and increased 0.7 percent excluding energy. The government is scheduled to release its consumer price report tomorrow.
"Elevated unemployment and stable inflation expectations should keep inflation subdued, and indeed, inflation could move lower from here," Fed Chairman Ben S. Bernanke said Dec. 7 in a speech to the Economic Club of Washington. "The Federal Reserve is committed to keeping inflation low and will be able to do so."
U.S. central bankers meet today and tomorrow for their final gathering of the year. At their last meeting in November, policy makers repeated their pledge to keep the benchmark interest rate low for an "extended period." They also specified for the first time, last month, that policy will stay unchanged as long as inflation expectations are stable and unemployment remains elevated.
A government report on Dec. 4 showed employers in the U.S. cut the fewest jobs in November since the recession began, while the unemployment rate fell to 10 percent from a 26-year high of 10.2 percent.
Another challenge for policy makers is trying to absorb excess capacity. Economists track operating rates to gauge factories' ability to produce goods with existing resources. Lower rates reduce the risk of bottlenecks that can force prices higher.
An expanding economy reduces the risk of deflation. Keith Busse, chief executive of Steel Dynamics (STLD), the third-largest U.S.-based steelmaker, said in a statement last week that "pricing has begun to move in a positive direction."
Steel Dynamics projected fourth-quarter profit that was less than analysts' estimates because of falling prices in the scrap-recycling business.
Other companies may see increased profits as commodity prices gain. Alcoa (AA), the largest U.S. aluminum producer, may see its stock and per-share profit rise more than previously anticipated in 2010 as metal prices rise, JPMorgan Chase & Co. (JPM) said last week.
To contact the reporter on this story: Timothy R. Homan in Washington at email@example.com