Soaring Food Costs Pushed Producer Prices Up 0.7% in March

vegetables food pricesProducer prices took an unexpected jump in March 0.7%, the U.S. Labor Department announced Thursday, as spiking food prices pushed the wholesale index higher.

However, the core rate, which excludes the often-volatile food and energy component, still shows low inflation at the wholesale level: It rose just 0.1% in March.

Economists surveyed by Bloomberg News had expected producer prices to rise 0.4% in March after falling 0.6% in February, and increasing 1.4% in January. Economists also had expected the core rate to rise 0.1% in March after increasing 0.1% in February and 0.3% in January.

Inflation at the wholesale level has trended modestly higher in the past 12 months, rising 6%. That's up from the 4.4% year-over-year rate recorded in February. Wholesale prices rose 4.4% in 2009 and 0.9% in 2008.

Core PPI: Little Price Pressure

However, more-telling core rate still shows scant inflation. It has risen just 0.9% in the past 12 months -- or well within the U.S. Federal Reserve's "comfort zone" for inflation. Minus food and energy, wholesale prices have been tame in the past 12 months.

March shows the clear signs of soaring food prices, particularly vegetables, whose crops were decreased by a cold winter that extended to Florida. Wholesale food prices jumped 2.4%, with fresh/dried vegetables skyrocketing 49%. Further, wholesale food prices are up 6.8% in the past 12 months.

Also in March, foodstuffs jumped 3.4%, finished consumer goods rose 2.4%, materials/construction components were up 0.6%, gasoline prices climbed 2.1% and heating oil increased 1.9%. Manufacturing capital equipment prices fell 0.1%, and construction materials declined 0.1%.

Business executives, economists and in particular Fed officials closely monitor the PPI because it provides an early-stage warning about inflation. Fed officials pay especially close attention to the core-PPI statistic to gauge core business costs.

The March producer price report was definitely skewed higher by an irregular event -- higher food prices (particularly vegetables). That's a major reason the Fed concentrates on the core rate. The rate there should make it easier for the Fed to continue its accommodative, low-interest monetary policy to stimulate U.S. economic growth.
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