Wholesale Prices in U.S. Climbed More Than Forecast in July

Wholesale prices in the U.S. climbed more than forecast in July, reflecting higher costs for automobiles, cigarettes and pharmaceuticals.

The producer price index rose 0.3 percent after an increase of 0.1 percent in June, the Labor Department reported today in Washington. The median estimate in a Bloomberg survey of 78 economists called for a 0.2 percent gain. Core inflation, which excludes volatile food and energy prices, climbed 0.4 percent, the most since January.

Compared with last year, the pace of core inflation cooled, a sign the global economic slowdown is limiting price pressures and giving Federal Reserve policy makers leeway to take more action if needed to spur growth. At the same time, a recent rebound in fuel costs and higher agriculture prices will probably prevent input costs from receding further.

“We’re not terribly worried about inflation at the moment given the general weakness in the economy,” said Jeremy Lawson, senior U.S. economist at BNP Paribas in New York. The Fed’s view, “which will remain so after this data, is inflation is more likely to fall short of their target in the next couple years than exceed it,” Lawson said.

Another report showed retail sales rose more than forecast in July, easing some concern consumer spending, the biggest part of the economy, was foundering. The 0.8 percent advance, the first gain in four months, followed a 0.7 percent decrease in June, Commerce Department figures showed. Economists projected a 0.3 percent rise, according to the median forecast in a Bloomberg survey.

Shares Rise

Stock-index futures climbed after the reports. The Standard & Poor’s 500 Index rose 0.4 percent to 1,407.6 at 9:10 a.m. in New York. Treasury securities fell, sending the yield on the benchmark 10-year note up to 1.72 percent from 1.67 percent late yesterday.

Economists’ estimates for producer prices ranged from a decline of 0.2 percent to an increase of 0.6 percent.

Core wholesale prices were projected to rise 0.2 percent for a fifth month, the Bloomberg survey showed. About 40 percent of the increase in the core last month was attributable to a 1.6 percent jump in the cost of light motor trucks, the report said.

Compared with a year ago, companies paid 0.5 percent more for goods, the smallest increase since October 2009, after a 0.7 percent rise. The core index increased 2.5 percent in the 12 months ended in July, the smallest gain since June of last year.

Fuel Prices

Fuel costs fell 0.4 percent from the prior month, the fifth straight decline.

The cost of finished consumer foods rose 0.5 percent for a second month.

Prices of passenger cars increased 1.1 percent, the most since June 2009, while light trucks climbed 1.6 percent, the biggest gain since November 2009.

Costs of cigarettes climbed 2.1 percent in July, the biggest increase in a year. Pharmaceutical preparations cost 0.9 percent more in July than a month earlier, the most in six months.

Expenses for intermediate goods decreased 0.9 percent, and those for crude goods rose 1.8 percent.

The producer price index is one of several inflation measures monitored by the Federal Reserve. Another, the consumer price index, due tomorrow, is expected to increase by 0.2 percent, according to the median estimate in a Bloomberg survey of economists.

Federal Reserve

Fed officials anticipate inflation to grow “at or below” their goal of 2 percent, the Federal Open Market Committee said on Aug. 1. Subdued inflation could give the central bank more latitude to attempt to stimulate growth by injecting more liquidity into the economy when they meet next month.

Corporate customers remain sensitive to price increases, said Bill DeLaney, president and chief executive officer of Sysco Corp., a Houston-based food distributor.

“Until this economy shows more consistent improvement and until our customers participate in that, there’s going to continue to be a lot of pricing pressure out there,” DeLaney said on an Aug. 13 earnings call. “As we’ve talked about margin pressure over the last 12 to 18 months, we’ve attributed a lot of that to the challenges of passing along mid- to high- single-digit rates of inflation in a marketplace that’s still pretty fragile.”

To contact the reporters on this story: Lorraine Woellert in Washington at lwoellert@bloomberg.net; Alex Kowalski in Washington at akowalski13@bloomberg.net

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

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