U.S. Producer Prices Rose in September on Food, Fuel

Wholesale costs in the U.S. for goods other than food and energy rose in September for a second month at a pace that suggests limited demand is restraining inflation.

The so-called core producer price index increased 0.1 percent last month, Labor Department figures showed today in Washington. Including volatile food and energy costs, wholesale prices rose 0.4 percent, exceeding the median estimate in a Bloomberg News survey of economists.

With the recovery cooling from earlier this year, companies are hampered in their ability to pass along gains in commodity costs. The lack of inflation gives the Federal Reserve room to pursue easier monetary policy as the unemployment rate holds close to a 26-year high.

“We’re kind of in a zone where neither inflation nor deflation is an overly significant concern,” said Russell Price, a senior economist at Ameriprise Financial Inc. in Detroit, who accurately forecast the gain in core prices. “Core prices remain in check as demand remains subdued.”

Estimates in the Bloomberg survey of 74 economists ranged from a decline of 0.4 percent to a gain of 0.1 percent, after a 0.4 percent rise in August. Excluding volatile food and energy costs, economists had also forecast a 0.1 percent gain.

A separate report from the Labor Department showed first- time claims for jobless benefits rose by 13,000 to 462,000 in the week ended Oct. 9. The total number of people on unemployment insurance rolls decreased to the lowest level since November 2008, while those getting extended benefits declined.

Stock-Index Futures

Stock-index futures pared gains after the reports. Futures on the Standard & Poor’s 500 Index expiring in December rose 0.2 percent to 1,176.2 at 8:52 a.m. in New York, after rising as much as 0.6 percent earlier. The yield on the 10-year Treasury note rose to 2.43 percent from 2.42 percent late yesterday.

The U.S. trade deficit widened more than forecast in August as growing demand for autos and capital equipment made overseas swamped a gain in exports. The gap widened 8.8 percent to $46.3 billion, Commerce Department figures showed today.

Compared with a year earlier, companies paid 4 percent more for goods last month after a 3.1 percent year-over-year rise in August.

Excluding food and energy, wholesale prices climbed 1.6 percent in the 12 months ended in September following a 1.3 percent year-over-year increase in August.

Food, Energy

The cost of food increased 1.2 percent in September from a month earlier, the most since March. Energy prices increased 0.5 percent, led by liquefied petroleum gas.

Expenses for intermediate goods rose 0.5 percent in September and were up 5.6 percent compared with a year earlier, today’s report showed.

Prices of crude goods, or raw materials, decreased 0.5 percent last month and were up 20.3 percent from a year ago.

The cost of finished capital equipment rose 0.1 percent in September for a second month. Among consumer goods prices, food, women’s apparel and shoes increased.

The lack of price pressures is one reason economists in a Bloomberg survey taken Oct. 4 to Oct. 12 pushed back the timing of the Fed’s first increase in the benchmark interest rate to the first quarter of 2012, from the prior three months as predicted in September. The lending rate target has been in a range of zero to 0.25 percent since December 2008.

Monetary Policy

U.S. central bankers are debating the effects additional monetary stimulus would have on prices as they try to speed up the economy. The Fed’s statement on Sept. 21 was the first in almost two years of near-zero interest rates to say too-low inflation would warrant looser monetary policy.

The Federal Open Market Committee next meets Nov. 2-3. Minutes from its Sept. 21 meeting, released this week, showed policy makers discussed “several possible approaches” to supporting economic growth, mainly purchasing longer-term Treasury securities. Policy makers “saw only small odds of deflation,” according to the minutes.

Some company officials say they are seeing signs of a sustained recovery in the U.S.

“Except housing-related, we’re seeing things continue their gradual recovery,” CSX Corp. Chief Executive Officer Michael Ward said yesterday in a telephone interview, citing increased automobile production as helping support growth. “You are getting the drag effect you would expect as automotive continues to rebound.”

Other Gauges

Producer prices are one of three monthly inflation gauges reported by the Labor Department. Prices of goods imported into the U.S., released yesterday, fell 0.3 percent from the prior month. Costs excluding petroleum climbed for a second straight month.

Consumer prices, the broadest of the three measures, probably rose 0.2 percent in September for a third consecutive increase, according to a Bloomberg survey of economists before the Labor Department’s report tomorrow.

To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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