Producer prices rise 0.3% on higher food prices

Producer prices in the U.S. reversed course from March and climbed to a higher than expected 0.3% in April, according to the Labor Department’s Producer Price Index (PPI) report on Thursday. The PPI measures prices at the factory door and inflation pressures before they reach the consumer.

In March, cheaper energy pushed down prices by 1.2%, leading to renewed fears of accelerating deflation. In April, the government data shows that a 1.5% increase in the cost of food offset a 0.1% fall in energy prices — energy costs were down 5.5% in March. And with that, some of the deflationary steam has been evaporated. Deflation is a persistent decrease in general prices, or the opposite of inflation.

"It’s impossible to see how deflation can persist given the amount of liquidity in the system," Maxwell Clarke, chief U.S. economist at 4Cast.com in New York, was quoted on Bloomberg. "With oil moving back up, the thought in people’s minds becomes that inflation could ultimately become a problem that outweighs deflation."

It is worth noting that the PPI index has fallen 3.7% when compared to the same period last year, marking the biggest year-over-year fall since January 1950.

"Deflation is a bigger risk than markets or policy markets want to admit,"Steve Ricchiutto, chief economist at Mizuho Securities, was quoted on MarketWatch. "Everyone is so interested calling the turn in the economy that they are missing the actual developments."

The return to some inflation is thought to be a positive economic factor, many economists say.

The rise in food prices was the biggest since January 2008. The price of eggs jumped a whopping 43.7% compared to a 9.5% decrease in March, the government said.

The core PPI, which excludes volatile food and energy costs, rose 0.1% after a flat reading a month earlier.

The government’s Consumer Price Index (CPI) for April is scheduled for release on Friday at 8:30 AM ET. The CPI measures inflation pressures at the consumer level.

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