U.S. wholesale prices increase by most in more than a year

Prices paid to American factories and service producers rose in April by the most in more than a year, indicating a diminishing risk of deflation as demand improves. More

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U.S. wholesale prices increase by most in more than a year

Posted 5/14/14

Prices paid to American factories and service producers rose in April by the most in more than a year, indicating a diminishing risk of deflation as demand improves.

The 0.6 percent increase in the producer price index was the biggest since September 2012 and exceeded all estimates in a Bloomberg survey of economists, figures from the Labor Department showed today. Over the past 12 months, costs climbed 2.1 percent. Food prices surged by the most in three years.

The gain in April was broad-based - from goods such as poultry and trucks to services like transportation - and indicates a rebound in pricing power could be taking shape as the world economy improves. Rising costs will probably ease concern among some Federal Reserve policy makers who have said they want inflation to increase closer to their 2 percent goal.

The “trend is not threatening as long as it’s gradual and remains below central bank targets,” said Markus Schomer, chief economist at Pinebridge Investments LLC in New York, whose forecast for the PPI was among the highest in the Bloomberg survey. “The path from higher producer prices to higher consumer prices usually takes a little while.”

Stocks fell after benchmark indexes closed at all-time highs for a second straight day as investors assess earnings. The Standard & Poor’s 500 Index dropped 0.1 percent to 1,894.71 at 10:10 a.m. in New York as investors assessed earnings.

Survey results

The April PPI increase followed a 0.5 percent gain the prior month. The median estimate in a Bloomberg survey of 69 economists called for an advance of 0.2 percent. Forecasts ranged from a drop of 0.2 percent to a 0.5 percent gain.

The advance from the same month a year before was the biggest since March 2012 and followed a 1.4 percent rise in the year to March.

Wholesale food expenses increased 2.7 percent in April, the biggest jump since February 2011, led by an 8.4 percent surge in the costs of meats that was the biggest since 2003. A confluence of events ranging from drought in the West to porcine epidemic diarrhea is pushing up prices for beef, pork and other foods.

At Greeley, Colo.-based Pilgrim’s Pride Corp., “chicken remains the most competitively priced protein, especially when compared to the surging prices and lack of availability for other meats,” CEO William Lovette said in a May 1 earnings call. “The supply cycle for all three major proteins is strained now and we anticipate this will continue until mid-2015.”

Energy costs

Energy costs increased 0.1 percent last month after a 1.2 percent decline in March.

The so-called core measure, which strips out volatile food and fuel, increased 0.5 percent after rising 0.6 percent in March. It was projected to rise 0.2 percent, the survey median showed. The back-to-back gain in the core PPI was the biggest since comparable records began in 2010.

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