(Reuters)
- U.S. producer prices recorded their largest increase in nine months in March,
but that jump will probably not ignite inflation pressures as economic growth
remains moderate.
The
Labor Department said on Friday its seasonally adjusted producer price index
for final demand increased 0.5 percent last month, after slipping 0.1 percent
in February. The increase last month, which was the largest since June last
year, reflected a surge in the prices of food and trade services.
"Will
inflation accelerate? Probably, but not rapidly," said
Joel Naroff,
chief economist at Naroff Economic Advisors in Holland, Pennsylvania.
"Growing demand should stabilize prices, but the economy is not strong
enough to cause inflation to pick up very much."
Economists had
expected prices received by the nation's farms, factories and refineries to
gain only 0.1 percent in March. Some were puzzled by the increase.
The government
recently revamped the PPI series to include services and construction. Its
short history made it difficult to gauge a trend, some economists said.
Gus Faucher, a
senior economist at PNC Financial Services in Pittsburgh, said harsh weather during
the winter could have distorted producer prices.
"But there
is also the possibility that inflation may be picking up, as firms raise prices
given the recent limited acceleration in wage growth and stronger demand,"
said Faucher.
A survey on
Tuesday showed a significant increase in the share of small businesses raising
their prices this month. Fewer
reduced prices
last month. Government data on Thursday showed an unexpectedly big rise in the
price of imported goods in March.
In the 12 months
through March, producer prices advanced 1.4 percent. That was the largest
increase in seven months and followed a 0.9 percent rise in February.
Last month,
prices at the factory gate excluding volatile food and energy costs rose 0.6
percent, the biggest gain in three years. The so-called core PPI for final
demand had declined 0.2 percent in February.
A broader gauge
of core producer prices - final demand less foods, energy, and trade services -
rose 0.3 percent after ticking up 0.1 percent.
In the 12 months
through March, core PPI for final demand rose 1.4 percent after increasing 1.1
percent in February.
U.S. financial
markets were little moved by the data.
PORK, SAUSAGE
PRICES SURGE
Domestic demand
could strengthen further with a separate report on Friday showing consumer
sentiment hitting a nine-month high in early April.
The Thomson
Reuters/University of Michigan's consumer sentiment index rose to 82.6 in early
April, the highest since July, from 80.0 in March.
The upbeat
household sentiment fit in with other reports such as employment and automobile
sales that have suggested the economy was regaining some momentum after a
weather-induced lull early this year.
Low inflation has
allowed the Federal Reserve to maintain its ultra-easy monetary policy to nurse
the economy back to health. Some officials at the U.S. central bank have
expressed concern about persistently low inflation and the rise in producer
prices could calm their worries.
"They might
be pleased with this, particularly if it continues to be a little bit higher.
It keeps them on the path they have laid out to tapering and then raising rates
down the road," said Kathy Jones, fixed income strategist at Charles
Schwab in New York.
The Fed is
scaling back the amount of money it is injecting into the economy every month
to keep borrowing costs low. It slashed its benchmark lending rate to a record
low of zero to 0.25 percent in December 2008. Many economists expect the Fed to
start tightening monetary policy in second half of 2015.
Last month, food
prices jumped 1.1 percent, the largest increase since May, after rising 0.6
percent in February.
Food prices were
pushed up by a surge in the cost of pork, which saw its largest rise since
August 2008. Sausage, deli meat and boxed meat prices rose by the most since
August 1980.
Food prices have
now risen for a third straight month, in part reflecting a drought in the West.
There were also increases in the price of hay, hayseed and oilseeds.
Services for
final demand spiked 0.7 percent, the largest gain since January 2010, after
falling 0.3 percent in February. The rise was driven by a surge in chemicals,
apparel, securities brokerage and dealing, as well as portfolio management.
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