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Wholesale Prices in U.S. Fall More Than Forecast as Food Drops

Jan. 15 (Bloomberg) -- Wholesale prices in the U.S. dropped for a third month in December as food costs retreated, indicating there is little risk of a pickup in inflation.

The producer price index declined 0.2 percent following a 0.8 percent decrease the prior month, Labor Department figures showed today in Washington. Economists projected a 0.1 percent fall, according to the median of 77 estimates in a Bloomberg News survey. The core measure, which excludes volatile food and energy prices, rose 0.1 percent, less than projected.

Demand that cooled globally last year from Europe to China helped check input costs for producers. The reduced inflationary pressures mean Federal Reserve policy makers can keep adding stimulus to spur growth and employment without triggering a surge in prices.

“Raw prices are going to be fairly stable this year and pretty benign for businesses, at least for the first half of the year,” Robert Rosener, an associate U.S. economist at Credit Agricole CIB in New York, said before the report.

Projections in the Bloomberg survey ranged from a decrease of 0.8 percent to an increase of 0.3 percent. Core wholesale prices were projected to rise 0.2 percent following the prior month’s 0.1 percent gain.

For all of 2012, prices paid by companies for materials climbed 1.3 percent, the smallest advance since a drop in 2008. The core-price index increased 2 percent in the same period after rising 3 percent in 2011.

The Fed’s preferred price measure, which is tied to consumer spending patterns, rose 1.4 percent in the 12 months to November, according to data from the Commerce Department.

Fed Action

Central bankers in December adopted a more flexible approach to their interest-rate outlook, saying borrowing costs will stay low “at least as long” as unemployment remains above 6.5 percent and if the Fed predicts inflation of no more than 2.5 percent one or two years in the future. That language replaced an earlier link between the rate outlook and calendar dates. Unemployment was 7.8 percent in December and November.

The drop in the producer-price index last month was led by a 0.9 percent decrease in food expenses, the biggest retreat since May 2011. The cost of energy fell 0.3 percent as gasoline prices declined 1.7 percent, the report showed.

The cost of capital goods fell 0.1 percent last month after a 0.2 percent increase in November.

Price pressures were less muted down the production line, according to today’s data. The cost of intermediate goods increased 0.3 percent. Crude prices climbed 2.5 percent on crude energy materials.

Commodity Prices

Subdued input costs are good news for businesses reluctant to raise prices. The Thomson Reuters/Jefferies CRB commodity index has fallen 7.1 percent through yesterday from a six-month high on Sept. 14.

“For 2013, we expect neutral earnings impact from raw materials,” David Meline, chief financial officer of 3M Co., said during a Dec. 12 conference call. Fifty percent of the cost of goods the St. Paul, Minnesota-based manufacturer sells is in raw materials, he said. “The ultimate outcome will be somewhat dependent on the path of economic growth.”

Producer prices are one of three monthly inflation gauges reported by the Labor Department. The consumer price index, due tomorrow, was little changed in December after dropping 0.3 percent the prior month, according to the median estimate in the Bloomberg survey. The cost of goods imported into the U.S. fell 0.1 percent last month, Labor Department data showed Jan. 11.

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