Report is mixed on the economy
Wholesale prices shot up in March, but excluding volatile energy and food prices, all other prices were flat, the Labor Department said Friday in a report that suggested that inflation was not spreading throughout a wider range of goods in the economy.
In other economic news, the U.S. trade deficit narrowed for the second straight month, helped by a sharp drop in oil imports. And rising gasoline prices and troubles in the housing market knocked consumer sentiment to its lowest level in eight months this month, according to another report.
The 1% increase in the producer price index, which measures the cost of goods before they reach stores shelves, came after a 1.3% rise in February. The flat reading on “core” prices, excluding food and energy, marked an improvement from a 0.4% increase the previous month.
The pickup in overall wholesale inflation was higher than the 0.7% increase economists were expecting. On the other hand, the flat reading on core prices was lower. Analysts were forecasting a 0.2% rise there.
“Food and energy costs are surging, but if you don’t have to eat and drive, life is not that bad,” quipped Joel Naroff, president of Naroff Economic Advisors.
“This was a pretty good report, if you are a central banker,” he added. “If you live in the real world, it was not pleasant news.”
From the Federal Reserve’s perspective, the biggest risk facing the economy is that inflation doesn’t recede as policymakers expect. Although the Fed watches a variety of inflation barometers, it is especially interested in the behavior of core prices.
The good behavior of core prices in March suggested that inflation was not in danger of spreading throughout the economy. It also suggested that companies were acting with restraint in passing along their higher fuel costs in the prices they charged wholesalers.
Wholesale energy prices rose 3.6% in March, the most since November. Gasoline prices shot up 8.7%, also the highest since November. Residential natural gas prices increased 3.3%. Diesel fuel prices jumped 8.8%. Prices for liquefied petroleum gas, such as propane, went up 6.5%.
Businesses and consumers might see some relief from rising gasoline prices.
The Energy Department said Tuesday that the recent sharp rise in gasoline costs was likely to slow in the coming weeks, with prices averaging $2.81 a gallon over the vacation driving season, about 3 cents lower than last spring and summer.
Wholesale food prices in March rose by 1.4%, following a sharp 1.9% increase the month before. Last month’s gain reflected rising prices for vegetables, beef and veal, dairy products and processed young chickens, among other things.
The Commerce Department reported that the trade deficit came to $58.4 billion in February, the smallest since November.
The United States’ politically sensitive deficit with China was trimmed by 13.3% to $18.4 billion in February, the smallest since last May.
As for consumer confidence, the Reuters/University of Michigan Surveys of Consumers said the preliminary April reading of their consumer sentiment index slid to 85.3 from 88.4 in March.
The April result was the lowest since August 2006, when it was 82.0, and marked the third straight fall in the index.
“Consumer confidence declined in early April due to rising gas prices and falling home prices,” a statement accompanying the Reuters/University of Michigan data said.
