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

Wholesale prices in the U.S. fell more than forecast in March as the cost of energy slumped by the most in three years.

The 0.6 percent drop in the producer price index was the biggest since May and followed a 0.7 percent gain in the prior month, the Labor Department reported today in Washington. The median estimate in a Bloomberg survey of 75 economists called for a 0.2 percent decline. A core measure of prices that excludes the volatile food and energy categories rose 0.2 percent for a third month.

Weakness in Europe and slower growth in other global markets are restraining demand for commodities including oil, limiting the ability of U.S. companies to raise prices. A smaller risk of inflation is giving Federal Reserve officials room to keep buying assets at an unprecedented rate as they seek to boost growth and lower unemployment.

“Inflation fortunately remains low and that will support spending,” said Gus Faucher, senior economist at PNC Financial Services Group Inc. in Pittsburgh. “Inflation is a non-issue.”

Another report showed retail sales unexpectedly fell in March by the most in nine months as employment slowed, showing household spending ended the first quarter on softer footing.

Retail Sales

The 0.4 percent decrease, the biggest since June, followed a 1 percent gain in February, according to the Commerce Department in Washington. The median forecast of 85 economists surveyed by Bloomberg called for no change in March. Department stores and electronics dealers were among the weakest showings.

Stock-index futures extended declines after the retail data. The contract on the Standard & Poor’s 500 Index expiring in June dropped 0.4 percent to 1,581.1 at 9:08 a.m. in New York after closing at an all-time high yesterday.

Economists’ estimates for producer prices ranged from a decrease of 1.1 percent to a 0.5 percent gain. Core wholesale prices were projected to rise 0.2 percent, the Bloomberg survey showed.

Compared with the same month last year, companies paid 1.1 percent more for goods, the smallest 12-month advance since July, today’s report showed. The core index increased 1.7 percent in the year ended in March, matching the prior month’s gain.

Energy Prices

The wholesale cost of energy, including gasoline, diesel fuel and natural gas, slumped 3.4 percent in March. The decrease was the biggest since February 2010.

Diesel prices dropped 12.8 percent last month, the most in four years. Gasoline costs decreased 6.8 percent, the biggest decline since November.

The cost of finished consumer foods increased by the most in four months. Prices for fresh and dry vegetables jumped by 21.5 percent in March.

Among other finished goods that increased in March, civilian aircraft costs posted the biggest gain since December 2008.

A rebounding housing market is pushing up prices of carpeting. The costs of carpets and rugs increased 2.5 percent in March, the most since April 2009.

Expenses for intermediate goods decreased 0.9 percent, the most since October 2011, and those for crude goods slumped 2.5 percent.

Some companies are offering discounts to stoke consumer demand in the wake of a January tax increase and limited job growth.

Budget Minded

Darden Restaurants Inc., based in Orlando, Florida, is trying to draw more budget-minded customers with lower-priced offerings at its Olive Garden eateries.

“There are clearly a large number of guests at Olive Garden that would come more often if the experience is more affordable, and we’re going to address that in the short-term promotionally,” Darden President and Chief Operating Officer Drew Madsen said at an April 4 conference. “At the same time, we’re going to work on some more distinctive dishes at the other end. But in combination, we think it is going to lead to a check growth that’s clearly slower, meaningfully slower than it has been over the last four, five, six years.”

The limited pressure on prices has given the Fed room to continue an asset-purchase program that has swollen its balance sheet to a record $3.22 trillion. The Federal Open Market Committee last month said it would press on with its $85 billion in monthly bond purchases until the labor market improves “substantially.” Several Fed officials favored a retreat from the record stimulus by year’s end, according to minutes of the March 19-20 meeting that were released this week.

The producer price index is the second of three monthly inflation gauges reported by the Labor Department. The first, import prices, fell 0.5 percent in March, more than expected, as fuel prices retreated, the Labor Department reported yesterday.

The cost of living index, the broadest of the three measures, will be released next week.

(Updates with economist quote in fourth paragraph.)
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