U.S. producer prices rise 0.3%

Evidence of inflation pressures mounted as the troubled U.S. housing sector delivered more gloomy news, according to economic reports Tuesday.

U.S. producer prices rose by 0.3% in February as expected, but a key measure of core inflation at the producer level climbed at the fastest pace in well over a year, the Labor Department said.

The number of housing starts declined 0.6% last month, the Commerce Department reported.

This worked out to an annualized pace of 1.065 million units, which was higher than the 990,000 that had been forecast.

But the reading was buoyed by a jump in multiple family home construction, while single family home starts fell sharply.

“Regarding the housing starts, I wouldn’t put anything in that little bounce. The housing industry is in a recession,” said Josh Stiles, bond strategist at IDEAGlobal in New York.

Building permit activity, a sign of future construction plans, also slipped 7.8% to an annualized pace of 978,000, the slowest rate since September 1991.

“The keys to generating stability in the housing market are improved levels of affordability, a correction of the inventory imbalance, and a restoration of borrowers’ ability to access mortgage credit at a reasonable cost,” said Morgan Stanley economists David Greenlaw and Ted Wieseman.

“In sum, we look for about a 10% drop in real home prices over the next year,” they wrote in a note to clients.

Core producer prices, which strip out volatile food and energy costs at the farm and factory gate, rose by 0.5% last month versus estimates for a 0.2% gain and after a 0.4% advance in January.

The Labor Department said higher prices for cars, light trucks, pharmaceutical products and alcohol had helped push up the core reading, which notched the largest advance since November 2006, when it gained 0.9%.

Headline producer prices, which jumped 1% in January, were damped by a sharp 0.5% drop in food prices in February.

On a year-on-year basis, producer prices were up 6.4% while core 12-month PPI increased by 2.4%, which was the fastest pace since October 2007.

“Increases in the core intermediate and core crude indexes suggest that inflationary pressures continue to build,” noted Gary Bigg, an economist at Bank of America Securities.