DJ UPDATE: US Jan Producer Prices +0.8%; Core PPI +0.5%
Wed Feb 16 09:16:43 2011 EST
(Updates with analyst comment, details.) By Jeff Bater and Luca Di Leo Of DOW JONES NEWSWIRES WASHINGTON (Dow Jones)--Underlying wholesale prices in the U.S. climbed during January to their highest in more than two years as prescription prices rose, which may raise concerns about inflation as the economy accelerates. The so-called core rate of inflation was more than double what Wall Street expected. Nearly 40% of the advance was due to a surge in prices for pharmaceutical preparations. The index of producer prices, which measures how much manufacturers and wholesalers pay for goods and materials, rose a seasonally adjusted 0.8% in January from December, the Labor Department said Wednesday. The rise was driven by higher energy prices. But core prices, which strip out volatile food and energy items and are considered a more reliable indicator of inflation, increased 0.5% last month. Economists polled by Dow Jones Newswires were expecting a 0.9% increase in overall producer prices and a 0.2% increase in the core index. The core rate was the highest since October 2008, when it climbed 0.8%. "Evidence of an inflationary rebound continue to pour in," Miller Tabak analyst Dan Greenhaus said. To be sure, inflation pressures remain quite low. Year over year, the core index was up just 1.6%, in line with the Federal Reserve's mandate of price stability. The U.S. economy has been picking up speed in recent months amid rising international commodity prices, fanning fears about inflation. But the spillover into final consumer prices in the U.S. has been very limited so far and recent declines in crude oil and natural gas prices should provide some relief on energy prices in February. U.S. retailers and manufacturers have been reporting rising costs but haven't been able to pass their added overhead to consumers because of competition and cautious spending by Americans. The U.S. jobless rate remains elevated at 9.0%, keeping a lid on spending and wages. Wednesday's data said energy prices rose 1.8% in January from December, with increases in gasoline and diesel fuel. Food prices rose only 0.3% last month. As for other goods that influence the core index, prices climbed for plastic products, alcoholic beverages, commercial furniture, and jewelry. With underlying inflation low, the Fed resumed buying government bonds in November to boost jobs and the economy in a $600 billion program that is due to end in June. A top Fed official Tuesday warned that any further move by the central bank to reduce unemployment could bring high inflation. Richmond Fed President Jeffrey Lacker said the central bank is keeping a close eye on inflation, especially now that the U.S. economy is stronger and global food and energy prices are high. Prices of raw materials, known as crude goods, rose by 3.3% in January from the previous month. Intermediate prices in the pipeline climbed 1.1%. Economists expect a report out Thursday to show consumer prices rose a monthly 0.3% last month, but underlying inflation likely rose just 0.1%. -By Luca Di Leo and Jeff Bater, Dow Jones Newswires; 202-862-6682; luca.dileo@dowjones.com (END) Dow Jones Newswires 02-16-11 0916ET Copyright (c) 2011 Dow Jones & Company, Inc.
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