Wholesale prices in the U.S. climbed in December for the first time in three months to cap the smallest annual increase in five years, showing companies face little pressure to charge more.
The 0.4 percent increase in the producer-price index matched the median estimate of 79 economists surveyed by Bloomberg and followed a 0.1 percent drop in November, a Labor Department report showed today in Washington. The so-called core measure, which excludes food and energy, climbed more than forecast, led by the biggest surge in tobacco costs since 2007.
The 1.2 percent advance for the calendar year was the smallest since 2008, when the financial crisis made the recession that began in December 2007 even worse. Scant signs of accelerating inflation have given Federal Reserve policy makers room to move gradually as they wind down their unprecedented asset-purchase program.
“Pipeline inflation pressure is still pretty well contained,” said Gennadiy Goldberg, a U.S. strategist at TD Securities USA LLC in New York. “The lack of inflation pressures will give the Fed more room to maneuver.”
Another report showed factories in the New York region expanded in January at the fastest pace in more than a year. The Federal Reserve Bank of New York’s so-called Empire State index, which covers New York, northern New Jersey and southern Connecticut, jumped to 12.5 this month, the highest since May 2012. Readings greater than zero signal growth.
Stocks climbed, with the Standard & Poor’s 500 Index erasing its 2014 loss, as the World Bank raised its global growth forecast and Bank of America Corp.’s profit spurred a rally in financial shares. The S&P 500 added 0.5 percent to 1,848.38 at 1:18 p.m. in New York.
Last year’s increase in producer prices followed a 1.4 percent advance in 2012.
Estimates for the change in December wholesale prices in the Bloomberg survey ranged from a drop of 0.1 percent to a gain of 0.8 percent.
Core producer prices rose 0.3 percent in December, exceeding the projected 0.1 percent gain. Almost half the increase was attributed to a 3.6 percent jump in the cost of tobacco products that was the biggest since February 2007.
Core prices climbed 1.4 percent in the 12 months ended in December, the smallest annual gain since 2010.
Finished energy costs increased 1.6 percent from the prior month. Prices for gasoline, heating oil and diesel fuel all rose.
The cost of finished consumer foods dropped 0.6 percent.
Expenses for intermediate goods increased 0.6 percent, and those for crude goods jumped 2.4 percent. Crude energy materials, such as oil, coal and natural gas, rose 6.2.
Subdued price increases rank among the economic trends benefiting companies including Ford Motor Co. (F) The Dearborn-Michigan based second-largest U.S. automaker last month said pretax profit rose to about $8.5 billion in 2013.
“Job and income gains have been relatively stable,” Ellen Hughes-Cromwick, the company’s chief economist, said in a Jan. 3 sales and revenue call. “Inflation has been well contained and long-term interest rates are likely to be edging up, but remain low by historical standards.”
Producer prices are one of three monthly inflation gauges from the Labor Department. The import prices index was unchanged last month after falling 0.9 percent in November, another report showed yesterday. December figures for the cost of living index, the broadest of the three measures, are due tomorrow, and are projected to tick up 0.1 percent excluding food and energy.
Federal Reserve officials are watching inflation closely as the central bank slows its monthly pace of asset purchases, which have been boosting the economy. The bank’s $85 billion monthly buying pace slowed to $75 billion this month.
“If inflation stepped lower in a clear way, I think that would give me some pause” about supporting more trims to bond purchase, said Federal Reserve Bank of St. Louis President James Bullard, a supporter of tapering bond purchases, speaking in Indianapolis last week. Bullard doesn’t vote on policy this year.
Policy makers next meet in two weeks to determine their next course of action.
To contact the reporter on this story: Jeanna Smialek in Washington at firstname.lastname@example.org