BLBG: Producer Prices in U.S. Rise 1.7% in August as Gasoline Surges
By Bob Willis
Sept. 15 (Bloomberg) -- Wholesale prices in the U.S. rose more than twice as much as forecast in August, led by gasoline costs that have since partially receded.
The 1.7 percent increase in prices paid to factories, farmers and other producers was the fourth gain in five months and followed a 0.9 percent drop in July, the Labor Department said today in Washington. Excluding food and fuel, so-called core prices gained 0.2 percent, more than forecast.
Companies will have a hard time passing higher expenses onto customers until evidence that the economy is starting to recover translates into sustained gains in consumer spending and business investment. Economists predict inflation will stay under control, giving the Federal Reserve leeway to keep interest rates near zero for longer to spur growth.
“The Fed has to stay the course with the monetary policy it has in place,” Brian Bethune, chief financial economist at IHS Global Insight Inc. in Lexington, Massachusetts, said before the report. “Underlying purchasing power is shrinking and there is no pricing power.”
Economists forecast producer prices would rise 0.8 percent, according to the median of 73 forecasts in a Bloomberg News survey. Estimates ranged from a decline of 0.3 percent to a gain of 2 percent.
Excluding food and energy, costs were projected to increase 0.1 percent, according to the Bloomberg survey.
Compared with a year earlier, companies paid 4.3 percent less for goods. Core costs were 2.3 percent higher than a year earlier.
Energy Costs
Energy costs rose 8 percent, today’s report showed, led by a 23 percent gain in gasoline. Some of the increase may be reversed this month. Crude-oil futures on the New York Mercantile Exchange closed at an average $69.40 a barrel in the first two weeks of September, compared with an average $71.14 a barrel for all of August.
Energy costs plunged 21 percent from a year earlier.
The cost of food rose 0.4 percent from July, led by a 10 percent increase in egg prices.
The increase in core costs reflected higher prices for cars, trucks and goods used to produce pharmaceuticals.
The cost of passenger cars rose 0.7 percent while light- truck prices rose 0.8 percent.
The government’s “cash-for-clunkers” trade-in program allowed auto manufacturers to reduce factory-to-dealer incentives, boosting their profits, said Jonathan Basile, an economist at Credit Suisse Holdings Inc. in New York.
GM Incentives
“We’re down about $500 from July to August at approximately $3,200 per unit” in incentives to dealers, Mark LaNeve, vice president for North America sales at GM, said on a conference call Sept. 1.
Producer prices are one of three monthly inflation gauges reported by the Labor Department. Prices of goods imported into the U.S. fell a more-than-forecast 2 percent in August, led by a surge in fuel costs. The Labor Department tomorrow will probably report consumer prices rose 0.3 percent last month after holding steady the prior month, according to economists surveyed by Bloomberg.
Fed policy makers on Aug. 12 committed to keeping the key interest rate between zero and 0.25 percentage point “for an extended period” to promote economic recovery. They said they expected “inflation will remain subdued for some time.”
The economy will grow at a 2.9 percent annual rate in the July-through-September period, according to the median of 61 estimates in a monthly Bloomberg News survey, and slow to a 2.2 percent pace during the last three months of the year.
Scaling Back
The drop in oil prices from year-earlier levels has led some energy companies to scale back plans. Valero Energy Corp., the largest U.S. refiner, plans to idle a facility at its Delaware City, Delaware, plant, the company said Sept. 8 in a statement.
The shutdown of the coker, which processes heavy fuel oil into distillate and gasoline, reflects poor returns for large refineries on the East Coast with the ability to process heavy, sour grades of crude. At least 150 employees and 100 contract workers from the plant will be cut, Valero said. A gasifier processes feed from a coker to make natural gas.
Shutting down the complex at Delaware City will “reduce costs, improve reliability, and allow the refinery to run a lighter crude slate and shift production to higher-margin products,” Chief Executive Officer Bill Klesse said in the statement.
