Wholesale Prices in U.S. Rose in November

Prices paid to U.S. wholesalers excluding food and fuel rose less than forecast in November, indicating inflation will remain contained.

The so-called core measure increased 0.1 percent, less than the 0.2 percent gain projected by the median forecast of economists surveyed by Bloomberg News, Labor Department figures showed today in Washington. The producer price index climbed 0.3 percent, paced by a 1 percent advance in food expenses.

Slowing growth from Europe to Asia may restrain the cost of raw materials, while subdued job growth and stagnant wages may hold down demand in the U.S., giving companies little room to raise prices. Less inflation would validate Federal Reserve policy makers in their renewed pledge this week to hold rates “exceptionally low” at least through mid-2013.

“We are seeing some cooling in inflation,” said Julia Coronado, chief economist for North America at BNP Paribas in New York, who correctly forecast the gain in core inflation. “We’ve seen some leveling off in energy prices and that means less inflationary pressures in the pipeline.”

The number of applications for unemployment benefits unexpectedly dropped last week to a three-year low, an indication the labor market is healing, other figures from the Labor Department today showed. Jobless claims dropped by 19,000 to 366,000 in the week ended Dec. 10, the fewest since May 2008.

New York Manufacturing

Manufacturing in the New York region expanded more than forecast in December to the highest level in seven months as measures of employment and new orders improved, another report showed. The Federal Reserve Bank of New York’s general economic index rose to 9.5 from 0.6 in November.

Stock-index futures added to earlier gains after the reports. The contract on the Standard & Poor’s 500 Index maturing in March rose 1.1 percent to 1,220 at 8:53 a.m. in New York. Treasury securities fell, sending the yield on the benchmark 10-year note up to 1.93 percent from 1.90 percent late yesterday.

The median estimate of 75 economists surveyed by Bloomberg projected producer prices would rise 0.2 percent. Forecasts ranged from a decline of 0.3 percent to an increase of 0.6 percent.

Compared with November 2010, companies paid 5.7 percent more for goods, the smallest year-to-year increase since March. Core prices rose 2.9 percent in the 12 months ended in November.

The increase in food costs was led by a 12 percent jump in vegetables and an 8 percent gain in chickens.

Energy Prices

Wholesale energy costs climbed 0.1 percent, as higher prices for home heating oil and diesel fuel were offset by declines in natural gas and gasoline.

Fuel costs may fall this month. The price of crude traded on the New York Mercantile Exchange has dropped from a closing high of $101.28 on Dec. 6 to $94.94 yesterday as the Organization of Petroleum Exporting Countries raised its production ceiling.

Expenses for intermediate goods increased 0.2 percent following a 1.1 percent drop in October. Prices of crude goods, or raw materials that require further processing, rose 3.8 percent in November after falling 2.5 percent a month earlier.

“Inflation has moderated since earlier in the year, and longer-term inflation expectations have remained stable” Federal Reserve policy makers said in a Dec. 13 statement after their most recent monetary policy meeting. The policy making committee “also anticipates that inflation will settle, over coming quarters, at levels at or below those consistent with the committee’s dual mandate” of maintaining low inflation and boosting employment.

Falling Costs

American Eagle Outfitters Inc. (AEO), a Pittsburgh-based clothing retailer, is among companies projecting that costs will fall after cotton prices soared earlier this year.

“Strong sales growth enabled us to overcome significant pressure from higher cotton costs,” James O’Donnell, chief executive officer of American Eagle, said on a Nov. 30 conference call. “However, we do expect to benefit from lower cotton costs beginning in the second half of 2012.”

A strengthening of the U.S. dollar over the last three months may make foreign goods cheaper in the U.S. Since Aug. 31, the Dollar Index, which IntercontinentalExchange Inc. uses to track the currency against that of six major trade partners, has gained about 8.7 percent after falling 11 percent in the year ended Aug. 31.

Fed’s Gauge

The Fed’s preferred price gauge, which excludes food and fuel, rose 0.1 percent in October after no change the prior month. Fed policy makers aim for long-run overall inflation of 1.7 percent to 2 percent, according to their Nov. 2 forecast.

Policy makers this week reiterated their pledge to hold the benchmark interest rate near zero at least through the middle of 2013 so long as joblessness stays high and the inflation outlook is “subdued.”

Today’s report was the second on prices this week. Import prices rose 0.7 percent last month, the Labor Department reported yesterday. The consumer price index probably climbed 0.1 percent last month, economists forecast the Labor Department will report tomorrow.

To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net

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

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