Producer Prices in U.S. Increased 0.8% in November

Producer Prices in U.S. Rose 0.8% in November
An employee pushes a motor toward a conveyor belt after its final assembly at Baldor Electric Co.'s Fort Smith Motor Plant in Fort Smith, Arkansas. Photographer: Beth Hall/Bloomberg

Wholesale costs in the U.S. rose in November by the most in eight months, led by higher prices for gasoline, heating oil and fruit.

The producer price index increased 0.8 percent from the prior month after a 0.4 percent rise, Labor Department figures showed today in Washington. So-called core prices, which exclude food and energy costs, rose 1.2 percent in November from a year earlier, the smallest increase in five months and matching the median forecast.

Unemployment near a 26-year high is making it difficult for companies to pass on higher raw materials costs. The wholesale data underscore last month’s decision by Federal Reserve policy makers, who are meeting today, to take more steps to bolster the economy and prevent deflation, or a prolonged period of price declines.

“Businesses still lack the pricing power to pass on higher commodity costs,” said Ryan Sweet, a senior economist at Moody’s Analytics Inc. in West Chester, Pennsylvania. “Measures of inflation are still too low for comfort.”

Separate figures from the Commerce Department showed retail sales rose more than forecast in November, a sign consumers will play a bigger role in the recovery. Purchases increased 0.8 percent, following a 1.7 percent gain in October that was larger than previously estimated. The median forecast of economists surveyed by Bloomberg News called for a 0.6 percent rise.

Retail Forecast

Excluding autos, gasoline and building materials, which are the figures used to calculate gross domestic product, sales climbed 0.9 percent, the most since August.

Stocks advanced for a sixth day after the reports, and Treasury securities fell. The Standard & Poor’s 500 Index increased 0.2 percent to 1,243.23 at 9:58 a.m. in New York. The yield on the benchmark 10-year Treasury note, which moves inversely to price, rose to 3.35 percent from 3.28 percent late yesterday.

Economists forecast producer prices would rise 0.6 percent, according to the median of 76 projections in a Bloomberg survey. Estimates ranged from gains of 0.2 percent to 1.2 percent.

Compared with a year earlier, companies paid 3.5 percent more for goods last month after a 4.3 percent gain in October. Excluding food and energy, wholesale prices rose 1.2 percent in the most recent 12 months, following a 1.5 percent increase.

Core Inflation

So-called core prices rose 0.3 percent in November from a month earlier, reflecting a rebound in passenger car costs and higher pharmaceutical preparations, after a 0.6 percent drop in October.

New-car prices increased 1.7 percent, the most since 2006, after a 3 percent drop in October that was the biggest decline in more than four years. Prices of light trucks rose 0.3 percent, after a 4.3 percent decline that was the largest since October 2006.

Last month’s report included the Labor Department’s valuation of quality changes for 2011 model vehicles. The decline in prices for October suggests new vehicles were outfitted with better equipment or more options, while manufacturers kept price adjustments to a minimum.

The PPI is one of three monthly inflation gauges reported by the Labor Department this month. Import prices rose 1.3 percent in November, the government’s figures showed on Dec. 10. The consumer price index is scheduled to be released tomorrow.

Food Prices

The cost of food increased 1 percent, today’s report showed. Egg prices increased 23 percent, the most since April 2009, and fresh fruits and melons rose 14 percent, the biggest rise since December 2009.

Energy prices rose 2.1 percent. Gasoline costs were up 4.7 percent and home heating oil prices increased 7 percent, the most since August.

Expenses for intermediate goods rose 1.1 percent from the prior month and were up 6.3 percent from a year earlier. Prices of crude goods, or materials used at the earliest stage of the production process, increased 0.6 percent.

Fed policy makers, meeting today for the last time this year, may indicate that while the economy showed signs of picking up at the end of the year, high unemployment and a risk of a prolonged drop in prices remain. The Fed is scheduled to release its policy statement around 2:15 p.m. in Washington.

Fed’s Bernanke

Without action by the U.S. central bank last month to purchase as much as $600 billion of Treasury securities, the economy might have tipped into a period of deflation, Chairman Ben S. Bernanke said in an interview on CBS Corp.’s “60 Minutes,” aired Dec. 5. He said fears of inflation are “overstated” and that keeping price pressures under control isn’t a diminished priority for the central bank.

Companies, concerned about boosting sales, are absorbing higher costs rather than passing them on to consumers. The Fed’s preferred gauge for consumer prices, which excludes food and energy, rose 0.9 percent in October from a year earlier, the smallest gain on record, according to Commerce Department data.

“They’d love to be able to pass on the prices but I don’t think they can, the level of competition is too great,” said Robert Stein, a senior economist at First Trust Portfolios in Wheaton, Illinois. “The producers are going to have to absorb at least some of the costs themselves.”

Computer Prices

Cheaper component prices for some companies are allowing for bigger corporate profits. Dell Inc., the third-largest supplier of personal computers, last month posted earnings that beat analysts’ forecasts, helped by cheaper parts and buoyant spending from companies that are updating aging personal computers and servers.

Today’s Labor Department report showed computer prices in November were down 8.8 percent from the same month last year.

Profit margins were helped by “pricing discipline” that kept Dell from cutting product prices too much, Chief Financial Officer Brian Gladden said in an interview after the results.

The costs of computer memory and hard drives have declined, and that also shored up profitability, he said. Still, parts prices may “bottom out” this quarter and there will be a “more challenging competitive environment,” Gladden said on a conference call.

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