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Wholesale Prices in U.S. Rise for First Time in Four Months

Wholesale prices in the U.S. unexpectedly rose in June for the first time in four months, reflecting an increase in food costs.

The 0.1 percent gain in the producer price index followed a 1 percent decrease the prior month, Labor Department figures showed today in Washington. The median estimate in a Bloomberg News survey of 70 economists called for a 0.4 percent fall. Excluding volatile food and energy, the so-called core measure increased 0.2 percent as projected.

A. Schulman Inc. and Kennametal Inc. (KMT) are among companies anticipating raw materials costs will remain restrained as markets from Europe to Asia cool. Weakening growth in the U.S. also may limit price pressures through the production pipeline, reinforcing Federal Reserve policy makers’ projections that inflation is likely to be subdued.

“I’m not concerned about inflation at all at this point,” said Michael Moran, chief economist at Daiwa Capital Markets America Inc. in New York, who correctly forecast the gain in prices. “Some decline in commodity prices and a slower rate of growth in both the U.S. and globally suggests restrained prices in coming months.”

Stock-index futures held earlier gains after the report as slowing growth in China fueled speculation policy makers will boost stimulus measures. The contract on the Standard & Poor’s 500 Index maturing in September climbed 0.3 percent to 1,333 at 8:44 a.m. in New York. Treasury securities were little changed, with the yield on the benchmark 10-year note at 1.49 percent compared with 1.48 percent late yesterday.

Survey Results

Economists’ estimate for producer prices ranged from an increase of 0.2 percent to a decline of 1.3 percent.

Compared with the same month a year earlier, companies paid 0.7 percent more for goods, matching the 12-month gain in May as the smallest since October 2009.

The core index increased 2.6 percent in the 12 months ended in June, the smallest year-to-year gain since June 2011.

The gains in the PPI were led by a 0.5 percent increase in food, reflecting the biggest increase in meat prices since July 2011, the report showed.

Energy costs dropped 0.9 percent from the prior month, which included a record 2.1 percent drop in residential electricity.

About 70 percent of the increase in the core measure was attributed to a 1.4 percent advance in the cost of light motor trucks, the biggest in a year.

Raw Materials

Expenses further down assembly lines continued to drop last month, indicating price pressures will remain restrained. The cost of intermediate goods decreased 0.5 percent, the third consecutive decline. Crude goods fell 3.6 percent, the fourth straight fall.

Akron, Ohio-based A. Schulman (SHLM), a supplier of plastic compounds, anticipates raw-material costs will be relatively unchanged and said companies from which it buys goods seem to have little pricing power.

“Every month somebody tells us they’re going to increase their price,” Chief Executive Officer Joseph Gingo said on a July 10 conference call with analysts. “And every month, they’re not able to push it through because there is no demand, or soft demand.”

Producers benefiting from retreating costs for oil and other materials include Kennametal, a Latrobe, Pennsylvania- based supplier of cutting tools to manufacturers. The lower expenses will be a “tailwind,” Chief Executive Officer Carlos Cardoso said on a June 6 conference call with analysts.

Fed Outlook

Contained price pressures give the Fed more room to try to spur the three-year expansion. Declining consumer inflation reflected reductions in the price of crude oil and gasoline, and “measures of long-run inflation expectations continued to be stable,” policy makers said in minutes of their June meeting released this week.

Producer prices are one of three monthly inflation gauges reported by the Labor Department. The import-price index fell 2.7 percent in June, the biggest plunge since December 2008, a report showed yesterday. Prices excluding fuel fell 0.3 percent, the most in almost two years.

The cost of living index, the broadest of the three measures, may have been little changed last month, economists predicted ahead of the July 17 data.

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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