Wholesale prices in the U.S. fell more than forecast in November, led by the biggest drop in energy costs in more than a year, signaling inflation pressures remain weak even as the world’s largest economy is expanding.
The 0.2 percent decrease in the producer-price index followed a 0.2 percent advance in the prior month, a Labor Department report showed in Washington. The median forecast of 75 economists surveyed by Bloomberg called for a 0.1 percent decline. Costs were up 1.4 percent over the past 12 months, the smallest year-to-year gain since February.
Oil at a five-year low and slowing overseas markets will subdue prices in the production chain that feed into the cost of living. Persistently weak inflation has allowed Federal Reserve policy makers, who are scheduled to meet next week, room to keep interest rates near zero after ending monthly asset purchases in October as the economy strengthens.
“With falling oil prices and the stronger dollar, pipeline pressures are minimal,” Scott Brown, chief economist at Raymond James & Associates Inc. in St. Petersburg, Florida, said before the report. “There’s no real threat of higher inflation. The Fed has a lot more leeway.”
Projections in the Bloomberg survey ranged from a drop of 0.4 percent to an advance of 0.1 percent.
The report showed wholesale prices excluding food and energy were little changed following a 0.4 percent jump in October. They were forecast to rise 0.1 percent. Those costs were up 1.8 percent from November 2013.
Also taking out trade services, which some economists prefer because it strips out one of the most volatile components of PPI, costs were unchanged last month after a 0.1 October advance.
Energy expenses declined 3.1 percent in November, the biggest drop since March 2013. Gasoline decreased 6.3 percent, the most in two years. Food prices fell 0.2 percent.
West Texas Intermediate oil plummeted below $60 a barrel yesterday for the first time since July 2009 while Brent fell to a five-year low. The Organization of Petroleum Exporting Countries this week cut its forecast for 2015 demand, raising concern over the strength of the global economy and leaving investors contemplating when oil’s collapse will end.
The producer price gauge is one of three monthly inflation reports released by the Labor Department, which also produces the consumer price index and the import cost measure.
The Federal Open Market Committee is set to meet on Dec. 16-17. The central bank’s preferred gauge of price pressures, linked to consumer spending, rose by 1.4 percent in October compared with the same month last year and hasn’t been above the central bank’s 2 percent goal since March 2012.
The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major peers, has rallied for the past five months amid speculation an improving U.S. economy will spur the Fed to raise interest rates at the same time Europe and China are cooling.
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