Producer prices rise 0.8% in January, higher than expected

Producer prices rose 0.8% in January, reversing a five-month trend due to increased costs in energy, according to a Labor Department report released Thursday.

The Producer Price Index (PPI), which measures prices at the factory door and inflation pressures before they reach the consumer, topped forecasts that projected a climb from 0.3% and 0.4%. Many economists tend to think the price increases are temporary.

"It is doubtful that the price increases will be able to stick given the weakening economy and rising unemployment," said James O’Sullivan, a senior economist at UBS Securities LLC in Stamford, Connecticut, who projected wholesale prices would rise 0.9 percent. While "inflation hasn’t collapsed yet, the big concern still is that inflation will fall too much," he said.

Some Federal Open Market Committee (FOMC) members — who set federal fund interest rates — agree. FOMC minutes released Wednesday included committe member concern for disinflation and possible deflation, which is a persistent decrease in general prices (the opposite of inflation). Further, in a public speech Tuesday St. Louis Fed President Bullard said there was a key risk of deflation in 2009.

Until January, producer prices had been riding a current of declines that began in July and was led by falling energy prices. Wholesale prices fell 1.9% in Dec., declined 2.2% in Nov., and registered its biggest monthly decline ever in Oct. by falling a record 2.8%.

Energy prices switched directions in January, rising 3.7 percent compared to the 9.1 decline in December after plummeting 12.4% in November and 12.8% in October — which set a 22-year record.

In other numbers, January crude goods declined 2.9% while food prices fell 0.4%.

The core PPI, which excludes volatile food and energy costs, increased 0.4% compared to the 0.2% rise a month earlier.

The Labor Department’s Consumer Price Index (CPI) for January is scheduled for release Friday at 8:30 AM ET. The CPI measures inflation pressures at the consumer level. Economists are expecting consumer prices to rise by 0.3% while core consumer prices are expected to climb by 0.1%.

Leave a Reply