Producer Prices Unchanged as Inflation Remains Tame

wholesale price index
Mark Duncan/AP
By Lucia Mutikani

WASHINGTON -- U.S. producer prices were flat in August, pointing to muted inflation pressures that should allow the Federal Reserve to bide its time as it considers when to raise interest rates.

The Labor Department said Tuesday falling gasoline and food prices restrained its producer price index for final demand last month. Prices received by the nation's farms, factories and refineries had edged up 0.1 percent in July.

"The Fed has more time to allow monetary policy to work its way through the economy before feeling the need to raise rates," said Jay Morelock, an economist at FTN Financial in New York.

Economists had expected producer prices to gain 0.1 percent last month. In the 12 months through August, they increased 1.8 percent, accelerating a bit from the 1.7 percent rise in the year through July.

The report came as Fed officials gathered for two-day policy meeting. They have held benchmark rates near zero since late 2008, but are seen inching toward an increase around the middle of next year.

Data on retail sales, manufacturing, the services sector and housing have indicated the economy is on a firm growth path, although a quarterly survey of U.S. chief executive officers released on Tuesday showed they had grown gloomier on plans for hiring and more wary about sales prospects.

Despite the mostly upbeat readings on the economy's health, the tame reading on producer prices suggested the U.S. central bank need not rush to remove its monetary stimulus.

"If [Fed Chair Janet] Yellen is looking for evidence of slack in the economy, and thinking that inflation is too low, then PPI final demand prices fill the bill this morning," said Chris Rupkey, chief financial economist at MUFG Union Bank in New York.

U.S. financial markets were little moved by the data as traders took to the sidelines to await the Fed's policy statement Wednesday.

The PPI last month was dampened by a 1.4 percent decline in gasoline prices, which followed a 2.1 percent fall in July. Food prices slipped 0.5 percent after rising 0.4 percent a month earlier.

Easing wholesale food and gasoline prices could tame consumer prices over the coming months.

Also on Wednesday, the Labor Department will release August consumer prices data, with economists expecting prices to hold steady on a month-on-month basis after nudging up 0.1 percent in July.

The producer prices report showed prices received for services at the final demand level increased 0.3 percent after rising 0.1 percent in July. A 1.7 percent surge in prices for loan services accounted for more than 20 percent of last month's increase.

Producer prices excluding food and energy ticked up 0.1 percent, slowing from a 0.2 percent gain in July. In the 12 months through August, the core PPI for final demand advanced 1.8 percent. It had increased 1.6 percent in July.

A broader measure, which excludes food, energy and trade services, increased 0.2 percent for a third straight month. It was up 1.8 percent compared to a year ago.

9 Numbers That'll Tell You How the Economy's Really Doing
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Producer Prices Unchanged as Inflation Remains Tame
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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