Wholesale costs in the U.S. rose in August for a second month, indicating demand is strong enough to prevent deflation, or a prolonged drop in prices.
The producer price index increased 0.4 percent, the most in five months and twice the gain in July, Labor Department figures showed today in Washington. The median forecast was for a 0.3 percent rise, according to a Bloomberg News survey. A measure excluding volatile food and energy costs climbed 0.1 percent.
With the recovery cooling from earlier this year, companies may have limited scope to pass along gains in commodity costs. The figures underscore Federal Reserve Chairman Ben B. Bernanke’s view that the risks to the economy from higher inflation or further disinflation are low.
“We’re moving along right in the middle of the argument about prices,” Russell Price, a senior economist at Ameriprise Financial Inc. in Detroit, said before the report. Deflation is “a scenario we’re likely to avoid. Companies are keeping a lid on prices as the economy is struggling to grow.”
Estimates in the Bloomberg survey of 76 economists ranged from gains of 0.2 percent to 1.2 percent, after a 0.2 percent rise in July.
Excluding volatile food and energy costs, economists had forecast a 0.1 percent gain, the survey showed. The core index rose 0.3 percent in July.
A separate report today from the Labor Department showed applications for U.S. unemployment benefits unexpectedly fell last week to the lowest level in two months. Initial jobless claims dropped by 3,000 to 450,000 in the week ended Sept. 11.
Compared with a year earlier, companies paid 3.1 percent more for goods last month after a 4.2 percent rise in July.
Minus Food, Energy
Excluding food and energy, wholesale prices climbed 1.3 percent in the 12 months ended in August, following a 1.5 percent year-over-year increase in July.
The cost of food decreased 0.3 percent in August. Energy prices increased 2.2 percent, led by the biggest gains in costs of gasoline and heating oil since January.
Expenses for intermediate goods rose 0.3 percent in August and were up 5 percent compared with a year earlier, today’s report showed. Prices of crude goods increased 2.3 percent last month and were up 18.3 percent from a year ago.
Bernanke, in an Aug. 27 speech at Jackson Hole, Wyoming, said the economy will continue to expand the rest of the year, “albeit at a relatively modest pace,” and price pressures would remain contained.
“At this juncture, the risk of either an undesirable rise in inflation or of significant further disinflation seems low,” Bernanke said.
The cost of finished capital equipment rose 0.1 percent in August. Among consumer goods prices, household appliances were unchanged, home electronics fell 0.2 percent and apparel was little changed.
The lack of price pressures is one reason economists in a Bloomberg survey taken Sept. 1 to Sept. 9 pushed back the timing of the Fed’s first increase in the benchmark interest rate to the fourth quarter of 2011, from the prior three months as predicted in August. The lending rate target has been in a range of zero to 0.25 percent since December 2008.
Some companies’ profits are getting squeezed because of higher raw-material prices. Nucor Corp., the largest U.S. steelmaker, forecast third-quarter profit that missed analysts’ estimates after higher scrap-metal costs hurt margins.
“A general slowdown has indeed occurred from the second quarter,” the Charlotte, North Carolina-based company said in a statement on Sept. 14. Nucor cited “lower margins caused by higher scrap costs and the inability to pass along these price increases.”
Second of Three
Producer prices are one of three monthly inflation gauges reported by the Labor Department. Prices of goods imported into the U.S., released yesterday, rose 0.6 percent from the prior month, twice as much as the median forecast in the Bloomberg survey. Costs excluding petroleum climbed for the first time since May.
Consumer prices, the broadest of the three measures, probably rose 0.3 percent in August for a second month after declining April through June, according to the survey. They are due tomorrow.
“The recovery may be choppy and uneven — and that may be an understatement — but it is a recovery,” Norfolk Southern Corp. Chief Executive Officer Charles “Wick” Moorman said in a Sept. 8 presentation in New York. “We don’t expect anything that looks like the much-discussed double-dip.”
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