Re: Market Talk / May 6th - May 12th
U.S. Producer Prices Rise 0.7% in April; Core Rate Unchanged
By Joe Richter
May 11 (Bloomberg) -- U.S. wholesale prices rose in April on higher costs for energy and food. Excluding food and fuel costs, prices were unchanged for the second month in a row.
Prices paid to factories, farmers and other producers rose 0.7 percent after a 1.0 percent gain in March, the Labor Department said today in Washington. The last time so-called core producer prices went two months without an increase was at the end of 2005.
The figures point to a gradual easing of price pressures that will allow Federal Reserve policy makers to keep interest rates steady, economists said. Companies may be reluctant to risk losing market share by charging more, which will limit consumer price pressures even as crude oil and raw materials costs rise, economist said.
``There's been a lot of volatility in energy prices, but it looks like things may be cooling down on core prices,'' Chris Low, chief economist at FTN Financial in New York, said before the report. ``That's good news for the Fed.''
Economists had forecast producer prices would rise 0.6 percent, according to the median of 81 estimates in a Bloomberg News survey. Estimates ranged from no change to an increase of 1.2 percent.
Core prices were projected to rise 0.2 percent last month, with estimates ranging from no change to a gain of 0.3 percent.
12-Month Change
Producer prices rose 3.2 percent from April 2006, the same as in the 12 months ended in March. Prices excluding food and energy rose 1.5 percent from a year earlier, compared with a 1.7 percent gain in the 12 months ended in March. They were projected to increase 1.8 percent from April 2006, according to the survey median.
Energy prices jumped 3.4 percent last month after increasing 3.6 percent the prior month. The price of gasoline rose 8.2 percent and natural gas costs rose 0.5 percent.
Crude oil futures on the New York Mercantile Exchange jumped to $66.46 a barrel on April 27, the highest closing price since September.
Today's report showed food prices rose 0.4 percent in April, after the previous month's 1.4 percent increase.
Intermediate Goods
Costs of intermediate goods, those used in earlier stages of production, rose 0.9 percent last month, after rising 1 percent the prior month. They were up 3.7 percent from a year ago.
Excluding food and energy, intermediate prices rose 0.8 percent after rising 0.2 percent. Compared with a year ago, core intermediate goods costs rose 3.6 percent.
Prices for raw materials, or so-called crude goods, fell 1.5 percent after a 3.2 percent increase the prior month.
Prices for passenger cars fell 1 percent after rising 0.2 percent the prior month. Costs of light trucks fell 0.5 percent after a 1.2 percent decrease.
The report showed prices for capital equipment rose 0.1 percent last month after a 0.1 percent decline the month before. Computer prices fell 1.8 percent after declining 2.6 percent.
The Fed this week kept its benchmark U.S. interest rate at 5.25 percent, and said inflation remains ``somewhat elevated.''
The central bank's preferred inflation measure is still above the comfort zone of a 1 percent to 2 percent gain cited by several policy makers including Chairman Ben S. Bernanke.
``The Fed is not off the hook yet when it comes to the inflation fight,'' Christopher Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi in New York, said before the report. ``Rising energy prices have the potential to push up core inflation at the consumer level as businesses seek to pass along the rising costs of energy.''
UAL Corp.'s United Airlines, the world's second-largest carrier, this month raised by as much as $100 its round-trip fares that are most often bought for business travel, citing higher fuel costs.
Still, there are signs that pricing pressures may be abating.
Delta Air Lines Inc., Northwest Airlines Corp. and US Airways Group Inc. this month said they withdrew a $10 round-trip fare increase adopted because of higher fuel prices. American Airlines, Continental Airlines Inc. and United Airlines pulled back the higher prices only where they compete with low-fare carriers.
Costs ``are beginning to plateau,'' Clayton Daley, chief financial officer of Procter & Gamble Co., the largest U.S. consumer-goods maker, said in an interview. ``We are hoping we don't have to raise prices anymore.''
P&G raised prices for its Folgers Gourmet Selections brand coffee by 5 percent in January after its cost for arabica beans jumped 20 percent in the previous year. Duracell prices increased 6 percent the same month.
The producer price index is one of three monthly inflation gauges reported by the government. A government report yesterday showed prices of goods imported into the U.S. rose for a third month in April.
The Labor Department is forecast to report on May 15 that its consumer price index rose 0.5 percent April after a 0.6 percent gain in March, while core inflation rose 0.2 percent after a 0.1 percent gain, according to a Bloomberg survey median.
. Also tonight in Asia will be exciting.
