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Revamped Wholesale Prices in U.S. Increased 0.2% in January

Producer prices in the U.S. increased in January, led by gains in goods such as food and pharmaceuticals.

The 0.2 percent advance in the producer-price index followed a 0.1 percent rise the prior month, a Labor Department report showed today in Washington. The median estimate in a Bloomberg survey called for a 0.1 percent increase. Over the past 12 months, wholesale prices rose 1.2 percent.

Today’s data mark the debut of the PPI after its first major overhaul since 1978, which more than doubles its reach of the economy by including prices received for goods, services, government purchases, exports, and construction. The lack of pipeline pressures, one reason inflation is running below the Federal Reserve’s target, has given policy makers room to keep borrowing costs low to spur growth.

“Pipeline pressures remain muted,” said Russell Price, a Detroit-based senior economist at Ameriprise Financial Inc., who correctly projected the 0.2 percent gain in the PPI. “Overall, businesses have very weak pricing power.”

Another report today showed the pace of home construction declined more than forecast in January, indicating an unusually harsh winter probably played a role in slowing projects.

Starts Slump

Housing starts fell 16 percent to an 888,000 annualized rate following December’s revised 1.05 million, according to data from the Commerce Department. The decrease was the biggest since February 2011. The median estimate of 84 economists surveyed by Bloomberg called for 950,000. Permits (NHSPATOT) for future projects showed a smaller drop, a sign activity may stabilize as the weather improves.

Related: Builders in U.S. Begin Work on Fewer Houses Than Forecast

Stock-index futures held earlier losses after the reports. The contract on the Standard & Poor’s 500 Index maturing in March dropped 0.3 percent to 1,832.2 at 9:10 a.m. in New York.

The revamped PPI encompasses 75 percent of the economy, up from a third of all production for the old index, which reflected the costs of goods alone.

Since services represent the biggest part of the economy, the gauge will offer a better look at inflation at the producer level and its scope will be similar to the government’s indexes of prices paid by American consumers.

Goods will account for about 24 percent of the new PPI gauge, while services -- including financial services, food wholesalers and transportation providers -- make up 63 percent. Prices received from government purchases and exported goods represent 11 percent, and construction is 2 percent.

Survey Results

For January, estimates in the Bloomberg survey of 65 economists ranged from a drop of 0.3 percent to a gain of 0.4 percent.

Wholesale prices excluding food and energy climbed 0.2 percent, exceeding the projected 0.1 percent advance, according to the survey median. They were unchanged the prior month.

The year-to-year advance in January was up from a 1.1 percent gain in the 12 months to December. Excluding food and energy, the index increased 1.3 percent in the 12 months ended in January, following a 1.2 percent year-to-year gain in December.

Wholesale food expenses climbed 1 percent in January, the first gain in three months and the most since May. The advance was led by the biggest jump in finfish and shellfish since 1984.

The cost of pharmaceutical preparations climbed a record 2.7 percent last month, accounting for about a quarter of the 0.4 percent increase in the price of final-demand goods, today’s report showed.

Energy Costs

Energy costs climbed 0.3 percent last month after jumping 1.5 percent in December.

The PPI measure of final-demand services increased 0.1 percent in January, restrained by a record 1.1 percent drop in the cost of transportation and warehousing.

Producer prices related to consumer spending rose 0.3 percent in January after being unchanged a month earlier, today’s report showed. The selling prices received by businesses for goods and services going toward consumption represent about 68 percent of the revamped PPI, which will help to provide insight into longer-term changes in the CPI.

The Fed at its last meeting in January voted to trim its monthly bond purchases by $10 billion to $65 billion. The central bank said in a statement that it will probably hold its target interest rate near zero “well past the time” that unemployment falls below 6.5 percent, “especially if projected inflation” remains below its longer-run goal of 2 percent. Minutes of the gathering are due to be released later today.

Subdued Costs

VF Corp. (VFC), the maker of Lee and Wrangler jeans and North Face outerwear, is among companies that are preparing for materials expenses to remain low in 2014.

“We’re seeing less than a half of a point of cost increases for the year,” Robert Shearer, chief financial officer, said on an earnings call on Feb. 14. That’s lower than the company had previously expected, he said.

Producer prices are one of three monthly inflation gauges from the Labor Department. The consumer price index, the broadest of the three measures, may have climbed 0.1 percent in January, according to the Bloomberg survey median. The CPI is due tomorrow.

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

To contact the editor responsible for this story: Carlos Torres at ctorres2@bloomberg.net

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