June Core PPI Shows Across-The-Board Declines
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June Producer Price Index !Surprise: No !
Key Numbers: Jun May !Trend: Core !
PPI Index: +0.6% 0.0% !Inflation Is !
Core Index: -0.1% +0.2% !Tame !
Indermediate:+0.9% -0.1% !Consensus: !
!Overall:+0.6%!
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By Joseph Rebello and Henry J. Pulizzi
WASHINGTON (Dow Jones)--U.S. wholesale prices surged in June, boosted entirely by higher energy prices, but the increase isn't likely to spur the Federal Reserve into another interest-rate increase next month.
The Producer Price Index for finished goods rose 0.6% in June, the biggest increase in three months, the Labor Department said Friday. But the increase was due wholly to a surge in energy prices, which rose 5.1% in the biggest increase since March. Outside the volatile food and energy sectors, inflationary pressures actually subsided: core prices fell 0.1%, marking the first decline since January.
The decline in the core index is likely to reassure Wall Street, which had expected a small increase in June. Still financial markets are likely to pay greater attention to June retail-sales data scheduled to be released at 8:30 a.m. EDT.
The producer-price numbers aren't expected to alter expectations for short-term interest rates: Amid signs the U.S. economic growth is finally to slow, most investors expect the Fed to leave interest rates unchanged next month. Futures contracts on the key federal funds rate show investors see less than a 50% chance of a rate increase in August.
The Fed has raised the funds rate six times in the last year to prevent an outbreak of inflation, raising it 1.75 percentage points to 6.5%. The increases haven't noticeably damped inflationary pressures, but the economy has clearly slowed in response. The economy created just 11,000 non-farm jobs last month, fewer than at any time in the last four years. Until June, retail sales had declined for two consecutive months.
Still, central bank policymakers insist the risk of inflation hasn't diminished sufficiently. In June, for example, average hourly wages accelerated to a 0.4% growth, up from 0.1% in April, despite a slowdown in job creation.
Across the country companies say they plan to raise prices to compensate for higher costs. On Friday the National Association for Business Economics said one-third of the firms it surveyed acknowledged increasing their prices in the second quarter, the biggest proportion in five years. Sixty percent of them reported higher material costs, up from 46% in the first quarter.
The Labor Department attributed the gain in overall producer prices in June to a surge in energy prices that caused gasoline prices in some parts of the country to rise above $2 a gallon. The result was a small price increase in a variety of energy products. Gasoline prices rose 11.8% while heating-oil prices rose 8.4% and prices of liquefied petroleum gas rose 17%.
The government said wholesale food prices continued to decline in June, falling 0.3% after a 0.2% drop in May. Prices of fresh and dry vegetables dropped 14.7% in the biggest decline since January. Prices of fresh fruits fell 11.8%, the biggest decline since November.
Wholesale computer prices, meanwhile, continued to fall in June. Computer prices fell 1.6.%, twice the rate of decline in May. Passenger-car prices also declined amid heavy discounting by automobile manufacturers: prices declined 0.5% in the biggest drop since February.Cigarette prices dropped 1.8% in the biggest decline since January.
Further up the production pipeline, price pressures were tame when food and energy prices are excluded. Overall crude prices rose 5.8%, but when food and energy prices are stripped out, crude prices fell for the fourth month in a row, declining 1.3%. Intermediate prices rose 0.9%, but the increase was just 0.2% when food and energy components are excluded.
-By Joseph Rebello and Henry J. Pulizzi; 202-862-9279 |
