Inflation Pressures Intensify as Producer Prices Jump

US producer prices rose more than expected in September making it the largest increase in five months according to a government report released today. Both wholesale prices rose as well as producer prices, both higher than what economists forecast.

Published: Tuesday, 18 Oct 2011 | 8:36 AM ET
By: Reuters
CNBC

U.S. producer prices rose more than expected in September to record their largest increase in five months as gasoline prices surged, a government report showed on Tuesday.

The Labor Department said its seasonally adjusted index for prices received by farms, factories and refineries, increased 0.8 percent after being flat in August. Economists polled by Reuters had expected prices to increase 0.2 percent.

Excluding volatile food and energy, wholesale prices rose 0.2 percent last month after inching up 0.1 percent in August. That was above economists expectations for a 0.1 percent gain.

But the strong rise in wholesale prices last month is unlikely to spark a broad increase in inflation pressures given the weak economic environment.

It will probably have little impact on the Federal Reserve, which focuses on core inflation, as it weighs options to help the anemic recovery and pull down an unemployment rate stuck above 9 percent.

Pressure on the U.S. central bank has lessened in recent weeks as data such as retail sales and the trade balance suggested economic growth accelerated in the third quarter after the second quarters tepid 1.3 percent annual rate.

Economists estimate gross domestic product grew at an annual pace of anywhere between 2.3 percent and 2.7 percent in the third quarter.

Last month, wholesale prices were pushed by a 4.2 percent jump in gasoline price, the largest increase since March, after dropping 1.0 percent in August. Food prices rose 0.6 percent, slowing from a 1.1 percent rise in August.

In the 12 months to September, producer prices increased 6.9 percent, accelerating from Augusts 6.5 percent advance.

Wholesale prices outside of food and fuel were bumped up by a 0.6 percent rise in light motor trucks — accounting for a third of the rise in the core PPI measure. Light trucks had risen 0.1 percent in August.

Passenger car prices fell 0.5 percent after slipping 0.4 percent in August. Disruptions to production wrought by the March earthquake in Japan caused car prices to spike early this year.

In the 12 months to September, core producer prices rose 2.5 percent after increasing by a similar margin the prior month. The rise was above economists expectations for a 2.4 percent advance.

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