Wholesale Prices in U.S. Unexpectedly Decreased in December

Wholesale prices in the U.S. unexpectedly dropped in December, consistent with the Federal Reserve’s assessment that inflation remains tame.

The producer price index fell 0.1 percent, the second decrease in the past three months, Labor Department figures showed today in Washington. Economists projected a 0.1 percent gain, according to the median estimate in a Bloomberg News survey. The core measure excluding volatile food and energy rose 0.3 percent as the cost of light trucks climbed.

Cooling global demand, which has reduced the cost of commodities and hurt profits at companies like aluminum producer Alcoa Inc. (AA), signals price pressures may dissipate. Less inflation offers Fed officials room for more policy steps should they need to boost the world’s largest economy.

“Price pressures will continue to moderate,” said Ryan Sweet, a senior economist at Moody’s Analytics Inc. in West Chester, Pennsylvania, who projected the decline in PPI. “Inflation is not an immediate concern for the Fed.”

Stock-index futures held earlier gains after the report. The contract on the Standard & Poor’s 500 Index climbed 0.3 percent to 1,292.8 at 8:43 a.m. in New York. Treasury securities were little changed.

The median estimate for producer prices was based on forecasts from 74 economists. Projections ranged from a decline of 0.3 percent to an increase of 0.8 percent. The index rose 0.3 percent in November.

Survey Results

Core wholesale prices were projected to rise 0.1 percent for a second month, the Bloomberg survey showed.

For all of 2011, companies paid 4.8 percent more for goods, the biggest annual gain since 2007. The core index increased 3 percent in the 12 months ended in December, the most since 2008.

The drop in the PPI was led by 0.8 percent decreases in both food and energy. The cost of vegetables plunged 11 percent and gasoline prices declined 2.3 percent, the report showed.

About 30 percent of the increase in core prices in December was attributable to a 0.9 percent gain in the cost of light trucks, the report said.

Price pressures cooled all the way down the production line, according to today’s data. The cost of intermediate goods dropped 0.5 percent reflecting decreases in chemicals, food and energy. Crude prices fell 1.1 percent on lower costs for food, including corn, hogs and cattle.

Raw Materials

Some producers are hurting from the lack of pricing power. Alcoa, the largest U.S. aluminum producer, on Jan. 9 reported its first quarterly loss in more than two years after prices for the lightweight metal tumbled. Aluminum fell in 2011 with the benchmark three-month price in London averaging 11 percent lower in the fourth quarter than a year earlier.

Inflation and pressures to raise prices “were very limited” at the end of last year, the Fed said in its Beige Book anecdotal business survey released on Jan. 11. Several district banks reported that “upward price pressures from rising commodity and input prices have eased substantially,” it said.

Producer prices are one of three monthly inflation gauges reported by the Labor Department, while the cost of living index, due tomorrow, is the broadest of the three measures. The consumer price index, due tomorrow, rose 0.1 percent in December after being little changed the prior month, according to the median estimate in the Bloomberg survey.

The cost of goods imported into the U.S. fell in December for the fourth time in the past five months, Labor Department data showed last week.

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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