Wholesale Prices Up More Than Expected
Rising prices for food, cars and electricity fanned inflation at U.S. factories and farms in January, and high gasoline prices in early February caused consumers to be less upbeat, according to data released Friday.
Financial markets were already banking on an interest rate hike when the Federal Reserve meets in March, and the inflation data helped cement their expectations for another rate increase after that.
The Labor Department said producer prices rose 0.3% in January while core prices excluding food and energy climbed 0.4%. The latter was twice market expectations and the fastest wholesale inflation rate since January 2005.
“The most disconcerting part of the [producer price index] report today was the rate of final core producer price pressures in January,” said Jason Schenker, an economist at Wachovia Corp. in Charlotte, N.C.
“The implication is that core inflation may be rising. If we see similar moves in the core [consumer price index] number, we are even more likely to see Fed hikes in March and May.”
The rise in the producer price index, a gauge of prices received by farms, factories and refineries, fell short of December’s downwardly revised 0.6% gain but outstripped Wall Street forecasts for a 0.2% rise.
The rise in the core index suggested that underlying inflation pressures were higher last month than financial markets had expected.
Also Friday, a report from the University of Michigan indicated that the public was less optimistic in early February. The university said its preliminary index of consumer sentiment fell to 87.4 from 91.2 in late January.
The producer price index was up 5.7% from January 2005, driven mostly by a 25% surge in the price of finished energy goods. But core prices have increased just 1.5% in the last 12 months, suggesting that energy price increases have not yet been passed through to other goods.
On balance, energy prices were flat in January. The cost of residential electricity soared a record 3%, while the price of residential natural gas climbed 0.8%. But those increases were offset by a 3.5% drop in the price of gasoline and a 6.8% decline in liquefied petroleum gas.
Economists commenting on the consumer sentiment survey attributed much of February’s weakening to the jump in gasoline prices early in the month.
But the report did not suggest a curbing of spending, especially after this week’s robust January retail sales report, which showed a 2.3% rise.
The index of current conditions fell to 107.7 from 110.3, while the expectations component fell to 74.4 from 78.9.
