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Wholesale Prices in U.S. Fall More Than Forecast on Food

Wholesale Prices in U.S. Fall More Than Forecast
Price pressures were less muted down the production line, according to today’s data. Photographer: Mark Elias/Bloomberg

Wholesale prices in the U.S. dropped for a third month in December as food costs retreated, capping the smallest annual gain in four years and indicating there is little risk of a pickup in inflation.

The producer price index declined 0.2 percent following a 0.8 percent decrease the prior month, Labor Department figures showed today in Washington. Economists projected a 0.1 percent fall, according to the median of 77 estimates in a Bloomberg News survey. For all of 2012, prices paid by companies climbed 1.3 percent, the smallest advance since a drop in 2008 and compared with an average 3.4 percent gain over the prior decade.

Demand that cooled globally last year from Europe to China helped check input costs for producers. The reduced inflationary pressures mean Federal Reserve policy makers can keep adding stimulus to spur growth and employment without triggering a surge in prices.

“We’re not really seeing any major inflation pressures out there, no matter where you look -- labor market, imports, raw material prices,” said Scott Brown, chief economist at Raymond James & Associates in St. Petersburg, Florida. “It looks like inflation is still going to be at or below the Fed’s comfort range,” which suggests “they can keep the gas pedal all the way down.”

Other reports today showed consumer spending climbed more than forecast in December and manufacturing in the New York region contracted for s sixth month in January.

Retail sales rose 0.5 percent following a revised 0.4 percent increase in November that was larger than previously reported, Commerce Department figures showed in Washington. The median forecast of 83 economists surveyed by Bloomberg called for a 0.2 percent rise. Sales excluding automobiles and gasoline climbed 0.6 percent for a second month.

Manufacturing Slumps

The Federal Reserve Bank of New York’s general economic index fell to minus 7.8 from a revised minus 7.3 in December. The median forecast of 54 economists in a Bloomberg survey called for a reading of zero, which signals no change in conditions. Readings of less than zero signal contraction in New York, northern New Jersey and southern Connecticut.

Stock-index futures held earlier losses after the reports. The contract on the Standard & Poor’s 500 Index maturing in March fell 0.4 percent to 1,458.5 at 8:56 a.m. in New York as concern about talks to raise the government’s debt ceiling outweighed investor optimism over corporate earnings.

Projections for producer prices in the Bloomberg survey ranged from a decrease of 0.8 percent to an increase of 0.3 percent.

Core Prices

The core measure, which excludes volatile food and energy prices, rose 0.1 percent for a second month, less than the projected 0.2 percent increase. It increased 2 percent last year rising 3 percent in 2011.

The Fed’s preferred price measure, which is tied to consumer spending patterns, rose 1.4 percent in the 12 months to November, according to data from the Commerce Department.

Central bankers in December adopted a more flexible approach to their interest-rate outlook, saying borrowing costs will stay low “at least as long” as unemployment remains above 6.5 percent and if the Fed predicts inflation of no more than 2.5 percent one or two years in the future. That language replaced an earlier link between the rate outlook and calendar dates. Unemployment was 7.8 percent in December and November.

The drop in the producer-price index last month was led by a 0.9 percent decrease in food expenses, the biggest retreat since May 2011. The cost of energy fell 0.3 percent as gasoline prices declined 1.7 percent, the report showed.

The cost of capital goods fell 0.1 percent last month after a 0.2 percent increase in November.

Production Line

Price pressures were less muted down the production line, according to today’s data. The cost of intermediate goods increased 0.3 percent. Crude prices climbed 2.5 percent on crude energy materials.

Subdued input costs are good news for businesses reluctant to raise prices. The Thomson Reuters/Jefferies CRB commodity index has fallen 7.1 percent through yesterday from a six-month high on Sept. 14.

“For 2013, we expect neutral earnings impact from raw materials,” David Meline, chief financial officer of 3M Co., said during a Dec. 12 conference call. Fifty percent of the cost of goods the St. Paul, Minnesota-based manufacturer sells is in raw materials, he said. “The ultimate outcome will be somewhat dependent on the path of economic growth.”

Producer prices are one of three monthly inflation gauges reported by the Labor Department. The consumer price index, due tomorrow, was little changed in December after dropping 0.3 percent the prior month, according to the median estimate in the Bloomberg survey. The cost of goods imported into the U.S. fell 0.1 percent last month, Labor Department data showed Jan. 11.

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