Producer Prices Rise More Than Forecast in June

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Producer Prices
Tony Dejak/AP
By Lucia Mutikani

WASHINGTON -- U.S. producer prices rose more than expected in June with gains across most categories, pointing to some inflation at the factory gate.

The Labor Department said Wednesday its producer price index for final demand increased 0.4 percent last month, reversing May's 0.2 percent decline.

Economists polled by Reuters had forecast prices received by the nation's farms, factories and refineries rising only 0.2 percent.

The government revamped the PPI series at the start of the year to include services and construction. The new series was viewed as an alternative measure of economy-wide inflation.

But big swings in prices received for trade services, a gauge of margins for retailers and wholesalers, have injected volatility into the series and made it difficult to get a clear read on producer inflation.

The dollar widened its gains against a basket of currencies after the data. U.S. stocks were set to open higher.

Inflation is edging higher, with key consumer price measures rising in both May and April, even though the main gauge watched by the Federal Reserve continues to run below its 2 percent target.

The U.S. central bank is widely expected to start raising interest rates in the second half of 2015, but labor market strength poses the risk of an earlier policy tightening.

Fed Chair Janet Yellen cautioned Tuesday that the Fed could raise interest rates sooner and more rapidly than currently envisioned if the labor market continued to improve faster than anticipated by policymakers.

The Fed, which is moving toward wrapping up its monthly bond buying program, has kept overnight lending rates near zero since December 2008.

In the 12 months through June, producer prices increased 1.9 percent after rising 2 percent in May.

Wholesale food prices slipped 0.2 percent, declining for a second straight month as the cost of grains tumbled by the most since July 2009. Prices for canned, cooked, smoked and prepared poultry recorded their biggest decline since January 2004.

Gasoline prices increased 6.4 percent, the largest gain since September 2012.

Prices received for services at the final demand level rose 0.3 percent after falling 0.2 percent in May.

Producer prices excluding food and energy gained 0.2 percent in June after slipping 0.1 percent in May. In the 12 months through June, the core PPI for final demand rose 1.8 percent, adding to the 2 percent gain in the period through May.

Producer prices excluding food, energy and trade services increased 0.2 percent after being flat the prior month.

Producer Prices Rise More Than Forecast in June
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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