Wholesale prices in U.S. rise more than forecast on services

WASHINGTON – Producer prices in the U.S. rose more than forecast in March, led by the biggest gain in the cost of services in four years.

The 0.5 percent advance in the producer-price index was the biggest since June and followed a 0.1 percent decrease the prior month, the Labor Department reported Friday in Washington, D.C. The median estimate in a Bloomberg survey called for a 0.1 percent increase. Wholesale prices rose 1.4 percent in the past 12 months.

Rising prices at clothing and jewelry retailers and food wholesalers accounted for much of the jump in services, even as commodity costs stagnated, signaling slowing growth in emerging markets such as China will keep price pressures muted. With inflation running well below the Federal Reserve’s goal, the central bank is likely to keep borrowing costs low in an effort to spur growth.

“We don’t want inflation to get out of hand, but we don’t see any indication that’s happening yet,” said Gus Faucher, a senior economist at PNC Financial Services Group Inc. in Pittsburgh, who projected wholesale prices would rise 0.3 percent, matching the highest estimate in the Bloomberg survey. “This is just one month, but if we get a few more reports like this it makes the Fed’s job more complicated.”

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Stock-index futures held earlier losses after the report. The contract on the Standard & Poor’s 500 Index maturing in June dropped 0.4 percent to 1,820.1 at 8:45 a.m. in New York as JPMorgan Chase & Co. slid after posting a decline in earnings.

New index

Friday’s PPI report is the third to use an expanded index that measures 75 percent of the economy, compared to about a third for the old metric, which tallied the costs of goods alone. After its first major overhaul since 1978, PPI now measures prices received for services, government purchases, exports and construction.

Estimates for the PPI in the Bloomberg survey of 72 economists ranged from a drop of 0.2 percent to a 0.3 percent gain.

Core wholesale prices, which exclude volatile food and energy categories, climbed 0.6 percent, the biggest gain since March 2011, exceeding the projected 0.2 percent advance of economists surveyed by Bloomberg. They dropped 0.2 percent in February.

The year-to-year gain in producer prices was the biggest since August and followed a 0.9 percent increase in the 12 months to February. Excluding food and energy, the index also increased 1.4 percent year to year following a 1.1 percent year-to-year gain in February.

Services jump

The cost of services climbed 0.7 percent in March, the biggest gain since January 2010. Goods prices were unchanged and were up 1.1 percent over the past 12 months.

Wholesale food costs climbed 1.1 percent in March, led by higher costs for meats, including pork and sausage. Energy costs fell 1.2 percent last month.

Food producers and restaurants say they’re paying more for beef, poultry, dairy and shrimp. At General Mills Inc., maker of Yoplait yogurt, Cheerios cereal and other brands, rising dairy prices helped push retail profit down 11 percent in the third quarter, said Ken Powell, chairman and CEO of the Minneapolis-based company. Powell called the inflation “manageable.”

“While the economy is improving slowly and incomes are strengthening slowly, they are improving,” Powell said on a March 19 earnings call. “As incomes continue to grow and consumers gain confidence that will be a positive sign for our category.”

Consumer prices

Friday’s PPI report provides a glimpse into the consumer-price index, the broadest of three inflation measures released by the Labor Department. The CPI, due to be released April 15, probably climbed 0.1 percent in March, according to the median forecast in a Bloomberg survey.

The wholesale price report also offers an advance look into the personal consumption expenditures deflator, a gauge monitored closely by the Fed. Health care prices make up the largest share of the core PCE index, which excludes food and energy costs. The next PCE report is due from the Commerce Department May 1.

This week, Fed policy makers played down their own predictions that interest rates might rise faster than they had forecast, according to minutes of the Federal Open Market Committee’s March meeting. The minutes bolstered remarks made by last month by Chairwoman Janet Yellen.

“If inflation is persistently running below our 2 percent objective, that is a very good reason to hold the funds rate at its present range for longer,” Yellen said at a March 19 press conference following the committee meeting.

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