Wholesale Prices in U.S. Rise More Than Economists Estimated on Food, Fuel

Wholesale prices in the U.S. rose more than forecast in September, boosted by gasoline, food and trucks, indicating inflationary pressures continue to bubble up the production line.

The producer price index climbed 0.8 percent, the most in five months, after no change in August, Labor Department figures showed today in Washington. Economists projected a 0.2 percent gain, according to the median of 71 estimates in a Bloomberg News survey. The so-called core measure, which excludes volatile food and energy, gained 0.2 percent, also more than predicted.

Slower growth from China and Europe to the U.S. means demand for raw materials will probably moderate, helping limit further gains in prices. A pickup in expenses would call into question whether inflation will cool enough to give Federal Reserve policy makers room to further spur the recovery should the world’s largest economy falter.

“With the slowdown in global economic activity, it’s hard to make the case that prices will accelerate more meaningfully from here,” said Tom Porcelli, chief U.S. economist at RBC Capital Markets Corp. in New York, who correctly projected the increase in core prices.

Stock-index futures held earlier losses after the report and Treasury securities rose on concern that France may lose its top credit rating and as China’s economy grew at the slowest pace in two years. The contract on the Standard & Poor’s 500 index expiring in December fell 0.1 percent to 1,192.6 at 8:47 a.m. in New York. The yield on the benchmark 10-year note fell to 2.13 percent from 2.16 percent late yesterday.

Survey Results

Projections for wholesale prices in the Bloomberg survey ranged from a 0.2 percent drop to an increase of 0.7 percent.

Compared with September 2010, companies paid 6.9 percent more for goods last month, after a 6.5 percent rise in August.

Wholesale prices excluding food and energy costs were projected to rise 0.1 percent for a second month, the Bloomberg survey showed.

Core wholesale prices climbed 2.5 percent in the 12 months ended in September, the biggest year-to-year gain since June 2009.

The gains in the PPI were led by a 4.2 percent increase in gasoline, a 10 percent surge in the cost of vegetables and a 0.6 advance for light motor trucks.

Food Prices

The cost of finished consumer foods climbed 0.6 percent.

Expenses for intermediate goods increased 0.6 percent, following a 0.5 percent drop in August that was the first decline since July 2010. Prices of crude goods climbed 2.8 percent.

Boise Inc. (BZ), a paper and packaging maker based in Boise, Idaho, is among companies that implemented limited increases in prices and are being restrained by a slowdown in demand.

“The cut-size papers are very much tied to employment and particularly white collar employment,” Chief Financial Officer Samuel Cotterell said on an October 13 conference call with investors. “As we continue to see weakness in employment numbers, then that tends to indicate weakness in paper prices.”

Most Fed officials at the Sept. 20-21 meeting anticipated both core and headline inflation was “likely to settle, over coming quarters, at or below the levels they see as most consistent with their dual mandate,” according to minutes released on Oct. 12.

Fed’s View

“With stable inflation expectations, significant slack in labor and product markets, slow wage growth, and little evidence of pricing power among firms, inflation was likely to decline moderately over time,” the minutes said.

Producer prices, one of three monthly inflation gauges reported by the Labor Department, are calculated based on costs on the Tuesday of the week containing the 13th of the month, which may influence month-to-month changes.

Prices of goods imported into the U.S. climbed 0.3 percent in September, Labor Department data showed last week.

Consumer prices, the broadest of the three measures, is due tomorrow. Economists in the Bloomberg survey predict the cost of living rose 0.3 percent, the smallest gain in three months, according to the median.

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

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

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