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Wholesale Prices in U.S. Increase More Than Forecast on Fuel (2)

July 16 (Bloomberg) -- Wholesale prices in the U.S. rose more than forecast in June, reflecting a jump in energy costs that is now abating.

The 0.4 percent increase in the producer price index followed a 0.2 percent drop in May, the Labor Department reported today. The median estimate in a Bloomberg survey of 69 economists called for an advance of 0.2 percent. Fuel costs climbed 2.1 percent, the biggest gain since February 2013.

Crude oil prices have dropped this month as concerns about supply disruptions ease, bolstering Federal Reserve Chair Janet Yellen’s view that recent increases were temporary. Smaller price increases indicate Fed policy makers can keep interest rates low well into 2015.

“The inflation concerns, while a little higher than they were a couple months ago, are still pretty low,” said Nariman Behravesh, chief economist at IHS Inc. in Lexington, Massachusetts, who accurately forecast the increase in wholesale prices. “Wage inflation, which in the end is the biggest driver of inflation, is still really tame.”

Treasury securities were little changed after the report, holding previous losses. The yield on the benchmark 10-year note, which moves inversely to prices, rose to 2.57 percent at 8:56 a.m. in New York compared with 2.55 percent late yesterday. Stock-index futures held earlier gains.


Compared with a year earlier, companies paid 1.9 percent more for goods and services, matching the median forecast of economists surveyed by Bloomberg and down from a 2 percent year- over-year increase in May.

The core measure, which strips out volatile food and fuel costs, climbed 0.2 percent, matching the survey median. Those costs fell 0.1 percent in May.

The core index increased 1.8 percent in the 12 months ended June following a 2 percent gain for the year ended May.

Estimates for the PPI index in the Bloomberg survey of economists ranged from unchanged to a 0.8 percent gain.

The wholesale prices report was expanded this year to include 75 percent of all U.S. goods and services, up from about a third for the old metric, which tallied the costs of goods alone. The index now includes prices received for services, government purchases, trade and construction.

The cost of services rose 0.3 percent last month, reflecting broad-based gains. Prices for goods climbed 0.5 percent. About 90 percent of the increase was attributed to the jump in fuel costs.

Energy Prices

Energy prices will probably retreat this month as West Texas Intermediate crude oil closed below $100 a barrel yesterday for the first time since May and Brent tumbled to a three-month low, reflecting easing concerns about Middle East supply disruptions.

Wholesale food costs declined 0.2 percent in June for a second month as grain costs dropped by the most since 2009 and canned poultry products showed the biggest fall in a decade.

Nonetheless Hershey Co. is among companies raising prices to offset rising costs. The largest U.S. chocolate maker said yesterday it increased prices 8 percent on average across the board effective immediately.

“Prices for ingredients such as cocoa, dairy and nuts have increased meaningfully since the beginning of the year,” Michele G. Buck, the Hershey, Pennsylvania-based company’s President for North America, said in a statement. “Given these trends, we expect significant commodity cost increases in 2015.”

Three Gauges

Today’s producer price index is one of three monthly inflation gauges from the Labor Department. Selling prices for goods and services going toward consumption represent about 68 percent of PPI and provide insight into longer-term changes in the consumer-price index, the broadest of the three measures.

The CPI, due out July 22, climbed 0.3 percent in June, according to the Bloomberg survey median.

The personal consumption expenditures price index, the Fed’s preferred inflation gauge, rose 1.8 percent in May from a year earlier, the most since October 2012.

Wage growth has yet to catch up to strength in job gains, posting a 2 percent year-over-year increase in June, matching the average since the end of the recession.

Yellen yesterday repeated her position that the labor market shows “significant slack” and inflation remains below the Fed’s goal. The central bank has been tapering its monthly bond purchases as the economy recovers and is on track to end them completely in October.

Yellen told reporters after the central bank’s June 18 meeting that the consumer price index has “been a bit on the high side” while adding that the recent “data that we’re seeing is noisy.” She added that inflation broadly speaking “is evolving in line with the committee’s expectations.”

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