Producer Prices Fall, Offer Little Sign of Inflation Pressure

Before you go, we thought you'd like these...
Before you go close icon
Producer Prices
J Pat Carter/AP
By Jason Lange

WASHINGTON -- U.S. producer prices fell in February, reinforcing the view that minimal inflation pressures could keep the Federal Reserve from raising interest rates for quite some time.

The Labor Department said Friday its seasonally adjusted producer price index for final demand dropped 0.1 percent last month.

The data gives little reason for Fed officials to worry their easy money policies are stoking inflation, and could make policymakers feel more comfortable holding interest rates near zero for many more months.

"There is nothing in this report that raises any concerns about inflation," said John Canally, economist and investment strategist at LPL Financial in Boston. "The economy is running too far below capacity for that to happen.

U.S. inflation has held at a very low level in recent years because of a persistently high unemployment rate.

The value of the U.S. dollar slipped against the yen following the data's publication, suggesting investors felt the report buttressed the view that the Fed would hold interest rates extremely low into next year. %VIRTUAL-article-sponsoredlinks%Prices for U.S. government debt and U.S. stock index futures were little changed following the publication of the report.

Analysts polled by Reuters had forecast a slight increase in prices received last month by businesses such as factories, retailers and wholesalers. The price index had risen 0.2 percent in January.

The renamed index was recently expanded to include services and construction. It was previously known as PPI for finished goods.

PPI now covers about 72 percent of services, which along with other factors will see it likely tracking closely the consumer price index with the passage of time, according to economists.

Final demand for goods rose 0.4 percent in February. Final demand for services dropped 0.3 percent. The Labor Department said about 80 percent of the decline in its services index was due to lower margins for retailers of apparel, footwear and accessories.

In the 12 months through February, producer prices increased 0.9 percent, the smallest one-year gain since May 2013.

Producer prices excluding volatile food and energy costs fell 0.2 percent. Another gauge of core producer prices -- final demand less foods, energy, and trade services -- nudged up 0.1 percent.

9 Numbers That'll Tell You How the Economy's Really Doing
See Gallery
Producer Prices Fall, Offer Little Sign of Inflation Pressure
The gross domestic product measures the level of economic activity within a country. To figure the number, the Bureau of Economic Analysis combines the total consumption of goods and services by private individuals and businesses; the total investment in capital for producing goods and services; the total amount spent and consumed by federal, state, and local government entities; and total net exports. It's important, because it serves as the primary gauge of whether the economy is growing or not. Most economists define a recession as two or more consecutive quarters of shrinking GDP.
The CPI measures current price levels for the goods and services that Americans buy. The Bureau of Labor Statistics collects price data on a basket of different items, ranging from necessities like food, clothing and housing to more discretionary expenses like eating out and entertainment. The resulting figure is then compared to those of previous months to determine the inflation rate, which is used in a variety of ways, including cost-of-living increases for Social Security and other government benefits.
The unemployment rate measures the percentage of workers within the total labor force who don't have a job, but who have looked for work in the past four weeks, and who are available to work. Those temporarily laid off from their jobs are also included as unemployed. Yet as critical as the figure is as a measure of how many people are out of work and therefore suffering financial hardship from a lack of a paycheck, one key item to note about the unemployment rate is that the number does not reflect workers who have stopped looking for work entirely. It's therefore important to look beyond the headline numbers to see whether the overall workforce is growing or shrinking.
The trade deficit measures the difference between the value of a nation's imported and exported goods. When exports exceed imports, a country runs a trade surplus. But in the U.S., imports have exceeded exports consistently for decades. The figure is important as a measure of U.S. competitiveness in the global market, as well as the nation's dependence on foreign countries.
Each month, the Bureau of Economic Analysis measures changes in the total amount of income that the U.S. population earns, as well as the total amount they spend on goods and services. But there's a reason we've combined them on one slide: In addition to being useful statistics separately for gauging Americans' earning power and spending activity, looking at those numbers in combination gives you a sense of how much people are saving for their future.
Consumers play a vital role in powering the overall economy, and so measures of how confident they are about the economy's prospects are important in predicting its future health. The Conference Board does a survey asking consumers to give their assessment of both current and future economic conditions, with questions about business and employment conditions as well as expected future family income.
The health of the housing market is closely tied to the overall direction of the broader economy. The S&P/Case-Shiller Home Price Index, named for economists Karl Case and Robert Shiller, provides a way to measure home prices, allowing comparisons not just across time but also among different markets in cities and regions of the nation. The number is important not just to home builders and home buyers, but to the millions of people with jobs related to housing and construction.
Most economic data provides a backward-looking view of what has already happened to the economy. But the Conference Board's Leading Economic Index attempts to gauge the future. To do so, the index looks at data on employment, manufacturing, home construction, consumer sentiment, and the stock and bond markets to put together a complete picture of expected economic conditions ahead.
Read Full Story

Sign up for Finance Report by AOL and get everything from business news to personal finance tips delivered directly to your inbox daily!

Subscribe to our other newsletters

Emails may offer personalized content or ads. Learn more. You may unsubscribe any time.

People are Reading