Wholesale Prices in U.S. Unexpectedly Fall on Fuel, Vehicles

Wholesale prices in the U.S. unexpectedly fell in October for the first time in five months as energy and vehicle costs dropped.

The 0.2 percent decline in the producer price index came after a 1.1 percent increase the prior month, Labor Department figures showed today in Washington. The median estimate in a Bloomberg survey of 73 economists called for a 0.2 percent rise. Excluding volatile food and energy, the so-called core measure decreased 0.2 percent, the first drop since November 2010.

Companies like Neenah Paper Inc. (NP) anticipate expenses for raw materials will remain restrained as Europe’s debt crisis weighs on global demand. Limited prices within the production pipeline are consistent with Federal Reserve policy makers’ view that inflation is likely to be contained, giving them room to focus on steps to spur economic growth.

“The overall picture is one of fairly subdued price pressures,” David Sloan, a senior economist at 4Cast Inc. in New York, said before the report. “There’s no major risk that inflation will accelerate.”

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 0.1 percent, the Bloomberg survey showed.

Retail sales fell in October for the first time in four months, influenced by the effects of superstorm Sandy, which hurt receipts for some and helped for others, a report from the Commerce Department also showed today.

Retail Sales

The 0.3 percent drop in purchases followed a 1.3 percent increase in September that was larger than previously reported. The Commerce Department said it was able to collect information from the storm-affected area, even as it was not able to quantify its impact.

Stock-index futures maintained gains after the reports, with the contract on the Standard & Poor’s 500 Index maturing next month rising 0.4 percent to 1,376.2 at 8:33 a.m. in New York.

The PPI report showed that compared with the same month a year earlier, companies paid 2.3 percent more for goods, after a 2.1 percent rise. The core index increased 2.1 percent in the 12 months ended in October following a 2.3 percent gain.

The drop in the PPI was led by a 0.5 percent decrease for energy prices. Heating oil declined 3.3 percent and gasoline was down 2.2 percent.

Expenses for intermediate goods decreased 0.1 percent, and those for crude goods climbed 0.9 percent.

Core PPI

The core PPI index was restrained by a drop in vehicle prices that reflected the change-over to a new model year. The cost of passenger cars fell 1.6 percent, the most since July 2009. Light trucks dropped 1.5 percent, the most since October 2010.

Contained raw materials costs are helping manufacturers like Alpharetta, Georgia-based paper maker Neenah Paper. The company said pulp prices in the fourth quarter are expected to decline in North America and increase slightly in Germany.

“With weakened global demand, prices for most other raw materials are expected to stay in line with the third quarter,” John O’Donnell, chief executive officer, said on a Nov. 7 conference call with analysts. “Looking ahead into 2013, expectations are for modest increases in most input costs.”

Limited price pressures give policy makers more room to maintain a third round of unprecedented bond-buying aimed at spurring the expansion and reducing unemployment. Longer-term inflation expectations have “remained stable,” the Federal Open Market Committee said in an Oct. 24 statement after its meeting.

2 Percent

“The Committee also anticipates that inflation over the medium term likely would run at or below its 2 percent objective,” the Fed officials said.

Producer prices are one of three monthly inflation gauges reported by the Labor Department. Import prices unexpectedly climbed in October, led by increases in energy expenses that have since been reversed. The 0.5 percent advance in the import- price index followed a 1.1 percent gain in September and a 1.2 percent rise in August, figures showed last week.

The cost of living index, the broadest of the three measures, may have climbed in October at the slowest pace in three months, economists project ahead of data due tomorrow.

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net Alex Kowalski in Washington at akowalski13@bloomberg.net

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

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.