Inflation Threatens as Producer Prices Surge in April

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Producer Prices
Mark Duncan/AP
By Lucia Mutikani

WASHINGTON -- U.S. producer prices recorded their largest increase in 1½ years in April as the cost of food and trade services surged, hinting at inflation pressures in some parts of the economy.

The Labor Department said on Wednesday its seasonally adjusted producer price index for final demand increased 0.6 percent, the biggest gain since September 2012.

Prices received by the nation's farms, factories and refineries rose 0.5 percent in March and last month's increase outpaced economists' expectations for only a 0.2 percent gain.

In the 12 months through April, producer prices advanced 2.1 percent. That was the biggest gain since March 2012 and followed a 1.4 percent rise in March.

The dollar trimmed losses against the euro and the yen on the data. U.S. stock index futures and prices for U.S. government debt were little changed.

Producer prices have been volatile in recent months, driven by swings in the trade services category. The PPI series was revamped at the start of the year to include services and construction.

Its short history and volatility makes it a bit difficult to discern a trend. While price pressures are creeping up at the factory gate, the overall inflation backdrop remains benign given the slack left over from the recession.

%VIRTUAL-article-sponsoredlinks%"We have spent a number of years where companies can't raise prices. There are reasons to believe prices could go up as the economy has been growing for five years," said Stephen Stanley, chief economist at Pierpont Securities in Stamford, Connecticut.

Last month, food prices surged 2.7 percent, marking the biggest rise since February 2011. They had risen 1.1 percent in March and are now up for a fourth straight month.

A drought in California is putting upward pressure on food prices and the high prices are already filtering through to the supermarket.

Food prices were pushed up by a surge in the cost of meats, which recorded their largest rise since October 2003.

Energy prices rose 0.1 percent last month. Services for final demand gained 0.6 percent after rising 0.7 percent in March.

Producer prices excluding volatile food and energy costs increased 0.5 percent in April after the prior month's 0.6 percent gain.

Another gauge of core producer prices -- final demand less foods, energy and trade services -- increased 0.3 percent after rising by the same margin in March.

In the 12 months through April, core PPI for final demand rose 1.9 percent. That was the biggest rise since December 2012 and followed a 1.4 percent increase in March.

-Additional reporting by Richard Leong in New York.

Inflation Threatens as Producer Prices Surge in April
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.
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