Wholesale prices in the U.S. unexpectedly dropped in April, the second decrease in three months, signaling the global recovery from the worst recession in the post-World War II era has yet to stoke inflation.
The 0.1 percent decline in prices paid to factories, farmers and other producers followed a 0.7 percent increase in March, the Labor Department said today in Washington. Excluding food and fuel, so-called core prices climbed 0.2 percent, compared with 0.1 percent gains in the previous two months.
Cost pressures are diminishing as goods make their way up production lines to consumers, showing companies have enough idle capacity to prevent bottlenecks even as sales rebound. The European debt crisis will probably also help restrain prices, one reason why economists are pushing back forecasts for when Federal Reserve policy makers will raise interest rates.
“Core PPI remains very subdued,” Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, New York, said in a note to clients. “There is no inflation threat here.”
Builders in April broke ground on more homes than projected as buyers took advantage of a tax credit before its expiration, figures from the Commerce Department also showed today. Housing starts rose to a 672,000 annual rate last month, the highest since October 2008 and up 5.8 percent from March. Building permits, a sign of future construction, dropped to the lowest level in six months.
Deficits in Europe
Stocks rose on the reports and as concern eased that measures aimed at reducing budget deficits in Europe will hamper growth. The Standard & Poor’s 500 Index rose 0.6 percent to 1,143.7 at 10:09 a.m. in New York. The yield on the 10-year Treasury note fell 4 basis points, or 0.04 percentage point, to 3.45 percent.
Prices excluding food and fuel were projected to also rise 0.1 percent. Last month’s gain was led by increases in the cost of automobiles and appliances.
Compared with a year earlier, companies paid 5.5 percent more for goods in April after rising 6 percent in March.
Excluding food and energy, wholesale prices climbed 1 percent in the 12 months ended in April, after a 0.9 percent increase a month earlier.
The cost of food fell 0.2 percent in April, led by declines in vegetables and dairy products. Energy costs decreased 0.8 percent last month on cheaper gasoline and natural gas costs.
Debt Crisis
Speculation that European measures to curb debt will erode economic growth has caused commodity prices to plummet in May, which may help contain inflation in coming months. The Reuters/Jefferies CRB Index of 19 raw materials yesterday slid to the lowest level in seven months.
Economists at Morgan Stanley in New York were among those last week that said Fed policy makers will keep the benchmark interest rate near zero for the rest of the year, in part because the debt crisis is reducing inflation expectations. They had previously forecast central bankers would start raising interest rates in September.
Producer prices are one of three monthly inflation gauges reported by the Labor Department. Prices of goods imported into the U.S. rose 0.9 percent in April, compared with a 0.5 percent gain a month earlier. Excluding petroleum, costs rose 0.3 percent.
The Greek debt crisis may also limit the cost of imported goods by pushing up the value of the dollar against the euro, making goods from the European Union cheaper.
Consumer Prices
The government is scheduled to release its consumer price index tomorrow. The median estimate of economists surveyed calls for a 0.1 percent increase.
One reason prices are contained is because companies have excess capacity. The proportion of plants in use rose to 73.7 percent in April, Federal Reserve figures showed last week. While that was the highest level since November 2008, it still is below the average 80 percent over the last two decades. Lower rates reduce the risk of bottlenecks that can force prices up.
Prices of intermediate goods excluding food and energy climbed 1.1 percent in April, the most since July 2008, and were up 5.6 percent compared with a year earlier. Prices of core crude goods advanced 4 percent and were up 50 percent from a year ago.
Alcoa Earnings
Alcoa Inc., the largest U.S. aluminum producer, last month reported lower-than-expected first-quarter sales, in part because it couldn’t raise prices fast enough to keep up with the increasing raw-material costs.
“End markets continue to strengthen,” Alcoa Chief Executive Officer Klaus Kleinfeld said on an April 12 conference call with analysts. “In the main, 2010 will clearly be better than 2009, but it’s going to be below historic norms in many of the markets.”
James O’Sullivan is among economists concerned rising costs for raw-materials will eventually bubble up the production pipeline.
“Core intermediate goods prices have been accelerating, suggesting an end to the slowing trend in core finished goods prices soon,” James O’Sullivan, global chief economist at MF Global Ltd., said in a note to clients before today’s report.
By Courtney Schlisserman
Tags: Debt, Dow Jones Industrial, economy, Federal Reserve, financial, financial crisis, financial markets, Global Economy, global recovery, interest rates
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