Producer prices jump in February

U.S. producer prices rose sharply in February, and new claims for unemployment benefits fell last week, data showed Thursday, suggesting inflation could remain a prominent concern.

But such worry may have been partly dispelled by reports depicting a limping manufacturing sector this month.

The Labor Department said the producer price index, a gauge of prices received by farms, factories and refineries, rose 1.3% last month as energy costs climbed 3.5% and food prices moved up 1.9%.

Excluding volatile food and energy costs, the so-called core index advanced 0.4%, reflecting steep increases in tobacco and light-truck prices.

“Today was a double dose of bad news. Weak manufacturing news and too-high inflation,” said Allen Sinai of Decision Economics in Boston. “The economy is growing significantly below potential and core inflation isn’t going down.”

The Philadelphia Federal Reserve Bank said its business activity index, which covers the mid-Atlantic region, declined to 0.2 from 0.6 in February. Separately, the New York Fed said its gauge of New York state factory activity fell to its lowest level since May 2005.

Though manufacturing continued to exhibit weakness, the data on initial claims for unemployment insurance benefits issued by the Labor Department suggest that the labor market remained relatively firm.

First-time claims last week fell 12,000, more than expected, to 318,000. The less volatile four-week moving average of initial claims declined 10,250 to 329,250.

Still, the number of workers remaining on unemployment benefits rose 48,000 to 2.58 million for the week ended March 3, the most recent week for which that statistic was were available.

Economists said the big producer price gains and evident health of the job market probably would keep alive concerns at the Fed that inflation might not recede as hoped.

“This would signal that there are inflationary issues, which would certainly mean that the Fed is not ready to lower interest rates,” said Tim Ghriskey, chief investment officer at Solaris Asset Management in Bedford Hills, N.Y.

Fed officials are widely expected to hold benchmark overnight borrowing costs steady when they meet Tuesday and Wednesday, but sentiment in the financial markets is that the central bank could lower interest rates by midyear.

The producer price numbers came a day before the Labor Department was set to release its closely watched consumer price index for February.

The February rise in energy prices at the producer level followed a 4.6% drop the previous month. Food prices were up 1.9% last month after a 1.1% gain in January.

Overall producer prices were up 2.5% from the same time a year ago before.