Producer Prices Rise 0.5%; Excluding Food, Fuel, Prices Up Less Than Expected

Producer prices rise 0.5 percent reflects higher energy costs, following a 1.4 percent drop in February.

From Bloomberg News

Producer prices in the U.S. rose last month, while a smaller-than-expected rise in costs excluding fuel and food pointed to tame inflation.

The 0.5 percent rise in prices paid to all producers reflected higher energy costs and followed a 1.4 percent drop in February, the Labor Department said in Washington. The core rate, which excludes food and energy, rose 0.1 percent, the smallest increase since November. Computers, metal-cutting machine tools and floor coverings were all cheaper in March.

``Companies still don't seem to have much pricing power,'' said Stuart Hoffman, chief economist at PNC Financial Services Group Inc. in Pittsburgh.

The figures may give Federal Reserve policy makers some comfort that inflation is contained after 15 consecutive interest rate increases since June 2004. Investors will learn more about the central bank's view with the release today of minutes from their March meeting.

Compared with March 2005, prices paid by consumers probably rose 2 percent, the smallest year-over-year rise since September.

Fed Governor Mark Olson said last week that the pass-through of higher commodity prices and higher labor compensation to core inflation measures has been ``limited.'' He also said that rate moves will ``depend importantly'' on how incoming data alter the outlook for inflation and growth.

Core producer prices rose 1.7 percent in the 12 months ended in March, matching the increase in February, today's report showed. In July 2005, the 12-month increase in core price reached a high of 2.8 percent. The year-over-year increase in core producer prices has averaged about 1.1 percent the past decade.

Costs of intermediate goods, which are partially finished goods such as lumber or steel, fell 0.1 percent last month, the second straight decrease. Prices of raw materials, or so-called crude goods, fell 2.7 percent.

Excluding food and energy, intermediate prices rose 0.1 percent after rising 0.5 percent in February. Core crude goods prices rose 0.8 percent after rising 3.3 percent.

Finished energy prices increased 1.8 percent last month after falling 4.7 percent in February. The costs of gasoline jumped 9.1 percent, the most since November 2004.

Retail unleaded gasoline averaged $2.43 a gallon last month, up from $2.27 for all of last year. Gas averaged $2.683 a gallon in the week ended April 10.

Food prices rose 0.5 percent after falling 2.7 percent a month earlier, the Labor Department said.

Prices for capital equipment rose 0.1 percent for a second month. Costs of light trucks rose 0.1 percent, while prices for civilian aircraft increased 0.2 percent, both smaller gains than the previous month. Construction machinery and equipment prices rose 0.2 percent. Prices for metal-cutting machinery and mining equipment both declined.

Fed Governor Susan Bies said last week in a speech in Los Angeles that policy makers agree the central bank is ``getting closer to the stopping point.''

General Motors Corp. and Ford Motor Co. have reduced prices on some vehicles to revitalize sales and pare excess inventory.

Detroit-based GM hopes to increase profit through a combination of reduced sticker prices, less-generous incentives and fewer sales to rental-car fleets. Last month, the automaker's incentives declined 25 percent from a year earlier, according to Autodata. GM's U.S. sales in March fell 14 percent.

Still, some companies are having success passing on higher costs and some economists say that poses a risk of accelerating inflation.

Middletown, Ohio-based AK Steel Corp., the third-largest U.S. producer, said April 5 that it will increase prices for stainless steel products starting April 30, and AMR Corp.'s American Airlines, the world's largest carrier, this month joined U.S. rivals in raising some fares $50 each way.

``Demand around the world and the United States is strong,'' said Daniel Dimicco, chief executive officer of Nucor Corp., the second-largest producer after U.S. Steel Corp. ``Raw material costs are driving steel pricing right along with demand.''

Prices paid to producers of steel mill products rose 0.3 percent after a 0.1 percent rise.

Rising costs for those goods used in earlier stages of production, are ``consistent with our overall view that core consumer price inflation will tick up towards the end of the year,'' said Drew Matus, a senior economist at Lehman Brothers Holdings Inc. in New York.

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