Gas Prices Fuel Surge in Producer Prices

producer price index
Charles Rex Arbogast/AP
By Lucia Mutikani

WASHINGTON -- U.S. producer prices recorded their largest increase in six months in December as the cost of gasoline rebounded strongly, but inflation pressures remained benign.

The Labor Department said Wednesday its seasonally adjusted producer price index rose 0.4 percent last month, the biggest rise since June, after slipping 0.1 percent in November.

December's rise in prices received by the nation's farms, factories and refineries ended two straight months of declines and matched economist expectations. In the 12 months through December, producer prices increased 1.2 percent after advancing 0.7 percent in November.

Wholesale prices excluding volatile food and energy costs increased 0.3 percent, the biggest gain since July 2012, after ticking up 0.1 percent the prior month. However, tobacco accounted for nearly half the increase.

In the 12 months through December, the so-called core PPI rose 1.4 percent after increasing 1.3 percent in November.

U.S. Treasury debt prices fell on the report, while U.S. stock index futures and the dollar were little changed.

A separate report showed manufacturing activity in New York state jumped to its highest level in 20 months in January as new orders soared.

The New York Federal Reserve's "Empire State" general business conditions index rose to 12.51 in January from a revised 2.22 in December to hit its highest since May 2012. %VIRTUAL-article-sponsoredlinks%Economists polled by Reuters had expected a reading of 3.75.

New orders rose to 10.98, a two-year high according to the New York Fed, from a revised -1.6.

While economic activity has picked up, inflation continues to run very low because of labor market slack.

That could see the Federal Reserve keeping interest rates near zero for a while. The U.S. central bank has started scaling back its monetary stimulus, reducing its monthly bond purchases to $75 billion from $85 billion starting this month.

"I think the Fed still thinks inflation is too low," said Gus Faucher, senior economist with PNC Financial Services in Pittsburgh. "That said [policymakers] will still reduce their asset purchases by $10 billion to $15 billion at the end of the month. We are see underlying growth at 3 percent and that's better than what we've had," he added.

The Fed's policymaking group meets on Jan. 28-29.

Consumer inflation data Thursday is expected to show prices rising in December, according to a Reuters survey. Still, inflation remains below the Fed's 2 percent target.

Last month, wholesale gasoline prices rose 2.2 percent, accounting for more than half of the increase in the energy index, which was up 1.6 percent.

Wholesale food prices fell 0.6 percent in December after being flat the prior month. Food prices were held down by the cost of pineapples, which recorded their biggest drop since May 2006. Pork prices also weighed, dropping by the most since September 2012.

Tobacco prices rose 3.6 percent. Passenger car prices, which rose 0.2 percent, and light truck prices, which advanced 0.5 percent, also helped to lift the core PPI.

9 Numbers That'll Tell You How the Economy's Really Doing
See Gallery
Gas Prices Fuel Surge in Producer Prices
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
  • DJI26135.79249.780.96%
  • NIKKEI 22520677.22114.060.55%
    Hang Seng26231.54-60.30-0.23%
  • USD (PER EUR)1.11-0.0002-0.02%
    USD (PER CHF)1.020.00110.11%
    JPY (PER USD)106.34-0.2560-0.24%
    GBP (PER USD)1.21-0.0044-0.36%