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U.S. Economy: Producer Prices Suggest Inflation Risk (Update2)
Feb. 17 (Bloomberg) -- U.S. wholesale prices rose 0.3 percent in January and costs excluding food and fuel increased by the most in a year, raising concern inflation may find its way to consumers.
The rise in the measure of prices paid to factories and other producers followed a 0.6 percent gain in December, the Labor Department said today in Washington. The core rate, which excludes food and energy, rose 0.4 percent, twice as much as forecast, after a 0.1 percent rise the previous month.
Companies such as Caterpillar Inc., which are struggling to meet improving demand, may be more successful in passing those increases along to customers in coming months. Prospects of faster inflation suggest Federal Reserve policy makers will keep raising interest rates after 14 increases since June 2004.
``Inflation pressures are still here and the risk of higher inflation appears to be rising,'' said Drew Matus, a senior economist at Lehman Brothers Inc. in New York. ``This data will keep the Fed on the offensive.''
Consumers, who paid more in January for gasoline, were less optimistic about the economy this month, according to a survey released today by the University of Michigan. The university's consumer confidence index fell to 87.4 from January's 91.2, and people were less optimistic about the economy over the next year. A gauge of Americans' attitudes about buying homes sank to the lowest in five years, the report showed.
Economists forecast 0.2 percent gains in the January producer price index and the core rate, based on the median estimates in a Bloomberg News survey of economists. Higher prices for vehicles and machinery led last month's gain.
Interest Rates
Fed Chairman Ben S. Bernanke said in congressional testimony this week that the economy is in a sustained expansion that may require additional interest rate increases to restrain inflation. In addition to high energy prices, ``another factor bearing on the inflation outlook is that the economy now appears to be operating at a relatively high level of resource utilization,'' he said.
Factories used 80.5 percent of capacity last month, the most since July 2000, a separate report from the Fed showed on Feb. 15. With factories starting to reach production limits, higher prices may result.
``In a capacity-constrained market, prices are easier to go up,'' said Matthew Rose, chief executive officer of Burlington Northern Sante Fe Corp., in an interview at the Business Council meetings in Boca Raton, Florida. Fort Worth, Texas-based Burlington Northern is the second-biggest U.S. railroad.
Consumer Prices
In 2005, companies had limited success passing on higher fuel costs. Consumer prices excluding food and energy rose 2.2 percent last year, matching the rise in 2004 even as energy prices increased by the most since 1990. The Labor Department will report on January consumer prices on Feb. 22.
Costs of intermediate goods, those used in earlier stages of production, rose 1.2 percent last month and are up 9.3 percent in the 12 months ended in January, today's Labor Department report showed.
``The jump in intermediate costs will also attract attention at the Fed,'' said Peter Kretzmer, a senior economist at Banc of America Securities LLC in New York.
Prices of raw materials, or so-called crude goods, fell 0.5 percent and were up about 24 percent in the last 12 months.
Excluding food and energy, intermediate prices rose 1 percent after rising 0.3 percent in December. Core crude goods prices fell 0.1 percent after rising 0.5 percent.
Raising Prices
Energy prices were unchanged last month after rising 2 percent in December. A record 3 percent increase in residential electric power prices and higher residential natural gas costs were offset by declines in gasoline and in liquefied petroleum gas.
Food prices rose 0.2 percent, led by higher costs for fruits and vegetables, the Labor Department said. Prices for capital equipment rose 0.3 percent after rising 0.1 percent in December. Cars, trucks, aircraft and construction equipment all rose in price.
Faced with rising raw-material costs, manufacturers are raising prices. Caterpillar, the world's largest maker of earthmoving equipment, said last month that fourth-quarter profit surged 54 percent, helped in part by higher prices. The company raised its earnings forecast for this year and announced a price increase of as much as 5 percent, effective Jan. 1.
More factories said their backlogs were greater in January than a month earlier, according to a report from the Institute for Supply Management earlier this month. The group's gauge of supplier deliveries also rose, evidence shipments are being delayed.
Nine of 10 chief executive officers said prices excluding energy and food will rise from 2 percent to 2.9 percent this year, according to the results of a survey by the Business Council issued yesterday. That suggests there is risk core consumer prices may accelerate after last year's 2.2 percent increase.
To contact the reporter on this story:
Carlos Torres in Washington ctorres2@bloomberg.net
Last Updated: February 17, 2006 12:38 EST
U.S. Economy: Producer Prices Suggest Inflation Risk (Update2)
Feb. 17 (Bloomberg) -- U.S. wholesale prices rose 0.3 percent in January and costs excluding food and fuel increased by the most in a year, raising concern inflation may find its way to consumers.
The rise in the measure of prices paid to factories and other producers followed a 0.6 percent gain in December, the Labor Department said today in Washington. The core rate, which excludes food and energy, rose 0.4 percent, twice as much as forecast, after a 0.1 percent rise the previous month.
Companies such as Caterpillar Inc., which are struggling to meet improving demand, may be more successful in passing those increases along to customers in coming months. Prospects of faster inflation suggest Federal Reserve policy makers will keep raising interest rates after 14 increases since June 2004.
``Inflation pressures are still here and the risk of higher inflation appears to be rising,'' said Drew Matus, a senior economist at Lehman Brothers Inc. in New York. ``This data will keep the Fed on the offensive.''
Consumers, who paid more in January for gasoline, were less optimistic about the economy this month, according to a survey released today by the University of Michigan. The university's consumer confidence index fell to 87.4 from January's 91.2, and people were less optimistic about the economy over the next year. A gauge of Americans' attitudes about buying homes sank to the lowest in five years, the report showed.
Economists forecast 0.2 percent gains in the January producer price index and the core rate, based on the median estimates in a Bloomberg News survey of economists. Higher prices for vehicles and machinery led last month's gain.
Interest Rates
Fed Chairman Ben S. Bernanke said in congressional testimony this week that the economy is in a sustained expansion that may require additional interest rate increases to restrain inflation. In addition to high energy prices, ``another factor bearing on the inflation outlook is that the economy now appears to be operating at a relatively high level of resource utilization,'' he said.
Factories used 80.5 percent of capacity last month, the most since July 2000, a separate report from the Fed showed on Feb. 15. With factories starting to reach production limits, higher prices may result.
``In a capacity-constrained market, prices are easier to go up,'' said Matthew Rose, chief executive officer of Burlington Northern Sante Fe Corp., in an interview at the Business Council meetings in Boca Raton, Florida. Fort Worth, Texas-based Burlington Northern is the second-biggest U.S. railroad.
Consumer Prices
In 2005, companies had limited success passing on higher fuel costs. Consumer prices excluding food and energy rose 2.2 percent last year, matching the rise in 2004 even as energy prices increased by the most since 1990. The Labor Department will report on January consumer prices on Feb. 22.
Costs of intermediate goods, those used in earlier stages of production, rose 1.2 percent last month and are up 9.3 percent in the 12 months ended in January, today's Labor Department report showed.
``The jump in intermediate costs will also attract attention at the Fed,'' said Peter Kretzmer, a senior economist at Banc of America Securities LLC in New York.
Prices of raw materials, or so-called crude goods, fell 0.5 percent and were up about 24 percent in the last 12 months.
Excluding food and energy, intermediate prices rose 1 percent after rising 0.3 percent in December. Core crude goods prices fell 0.1 percent after rising 0.5 percent.
Raising Prices
Energy prices were unchanged last month after rising 2 percent in December. A record 3 percent increase in residential electric power prices and higher residential natural gas costs were offset by declines in gasoline and in liquefied petroleum gas.
Food prices rose 0.2 percent, led by higher costs for fruits and vegetables, the Labor Department said. Prices for capital equipment rose 0.3 percent after rising 0.1 percent in December. Cars, trucks, aircraft and construction equipment all rose in price.
Faced with rising raw-material costs, manufacturers are raising prices. Caterpillar, the world's largest maker of earthmoving equipment, said last month that fourth-quarter profit surged 54 percent, helped in part by higher prices. The company raised its earnings forecast for this year and announced a price increase of as much as 5 percent, effective Jan. 1.
More factories said their backlogs were greater in January than a month earlier, according to a report from the Institute for Supply Management earlier this month. The group's gauge of supplier deliveries also rose, evidence shipments are being delayed.
Nine of 10 chief executive officers said prices excluding energy and food will rise from 2 percent to 2.9 percent this year, according to the results of a survey by the Business Council issued yesterday. That suggests there is risk core consumer prices may accelerate after last year's 2.2 percent increase.
To contact the reporter on this story:
Carlos Torres in Washington ctorres2@bloomberg.net
Last Updated: February 17, 2006 12:38 EST
posted by Jones Lang LaSalle NJ News Blog at 2:27 PM
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