Wholesale costs in the U.S. rose less than forecast in October, reflecting declines in prices of cars, trucks and computers that shows limited demand is keeping a lid on inflation.
The producer price index climbed 0.4 percent from the prior month, Labor Department figures showed today in Washington. Economists projected a 0.8 percent rise in October, according to the median estimate in a Bloomberg News survey. The so-called core measure, which excludes volatile food and energy costs, decreased 0.6 percent, the most since July 2006.
Companies have little scope to raise prices to recoup higher commodity costs as the expansion has cooled from the first half of 2010 and unemployment is stuck near 10 percent. The figures underscore the Federal Reserve’s decision this month to purchase another $600 billion in assets to help spur growth and reduce the risk of deflation, or a prolonged drop in prices.
“Higher energy costs are going to be absorbed by businesses at the receiving end as they can’t pass them on,” David Semmens, an economist at Standard Chartered Bank in New York, said before the report. “When you look at the excess capacity in the economy, you can see price pressures will stay very weak.”
Producer prices were projected to rise 0.8 percent, according to the median of 76 forecasts in a Bloomberg News survey. Estimates ranged from gains of 0.4 percent to 1.4 percent, after a 0.4 percent rise in September.
Excluding volatile food and energy costs, economists in the survey had forecast a 0.1 percent gain for a third month.
New car prices dropped 3 percent in October, the biggest decline since July 2006. Prices of light trucks decreased 4.3 percent, the most since October 2006.
Today’s report included the Labor Department’s valuation of quality changes in 2011 model vehicles. The decline in prices for October indicates new vehicles were outfitted with better equipment or more options, while manufacturers kept price adjustments to a minimum.
Compared with a year earlier, companies paid 4.3 percent more for goods last month after a 4 percent rise in September.
Excluding food and energy, wholesale prices climbed 1.5 percent in the 12 months ended in October, following a 1.6 percent year-over-year gain the prior month. The survey median called for an increase of 2.1 percent.
The cost of food decreased 0.1 percent, while energy prices rose 3.7 percent.
Expenses for intermediate goods rose 1.2 percent from the prior month and were up 6.4 percent from a year earlier, today’s report showed.
Prices of crude goods, or materials used at the earliest stage of the production process, increased 4.3 percent, the most since January.
The costs of finished computers and equipment dropped 1.1 percent in October.
Inflation is decelerating after the world’s largest economy grew at a 2 percent or less annual pace over the past two quarters, less than the Fed’s long-term estimate. It expanded 3.7 percent in the first three months of the year.
The Fed’s preferred gauge for consumer prices, which excludes food and energy, rose 1.2 percent in September from a year earlier, the slowest pace since 2001. Fed policy makers have a long-run goal of 1.7 percent to 2 percent inflation they see as consistent with achieving legislative mandates for maximum employment and stable prices.
Bernanke on Prices
“You don’t want inflation to be too high but you also don’t want it to be too low,” Fed Chairman Ben S. Bernanke said in a speech on Nov. 6. “Our purpose is to provide additional stimulus to help the economy recover and to avoid potentially additional disinflation which I think we all agree would be a worse outcome.”
The Fed is purchasing more Treasuries after having cut the benchmark rate almost to zero in December 2008 and buying $1.7 trillion in securities.
Costs of raw materials are rising. Rubber futures in Tokyo surged to a 30-year high on Nov. 11, followed by a decline the next day on concern that China, the largest user, may take more steps to curb inflation. The decline continued this week.
U.S. companies experiencing the elevated costs include Cooper Tire & Rubber Co., based in Findlay, Ohio.
“Raw material costs have continued to be elevated,” Roy Armes, chief executive officer of Cooper Tire, said on a Nov. 1 teleconference with analysts. Higher materials costs will continue through 2011, he said.
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 from the prior month, the Labor Department said Nov. 10,
Consumer prices, the broadest of the three measures, probably climbed 0.3 percent in October and the core index had the smallest year-over-year advance since 1961, according to the Bloomberg survey. The figures are due tomorrow.
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