U.S. January Producer Price Index Rises, Core Falls
From Bloomberg
By Monee Fields-White
Washington, Feb. 15 (Bloomberg) -- Prices paid to U.S. factories, farmers and other producers rose in January for the first time in four months, reflecting the biggest increase in the cost of food in almost a year, government figures showed.
The 0.1 percent rise in the producer price index followed a 0.6 percent decline in December and a 0.5 percent drop in November, the Labor Department said. Excluding food and energy, wholesale prices fell 0.1 percent in January, reflecting cheaper light trucks, men's clothing and cigarettes, after no change in the prior month.
Producer prices in January were 2.6 percent lower than they were in the same month last year, the biggest decrease since the 12 months that ended in February 1950. An economy that's been in recession since last March has weakened business demand for new equipment and made consumers cautious, prompting companies including Gateway Inc. to offer more discounts.
``The soft economy and price competition, as well as a strong dollar, are putting a cap on the ability of producers to consider raising prices,'' said Kevin Flanagan, a fixed-income strategist at Morgan Stanley Dean Witter & Co. in Jersey City, New Jersey.
Analysts had expected a 0.2 percent rise in the PPI and a 0.1 percent increase in the core rate. Prices at the earlier stages of the production process stayed tame.
Intermediate goods prices fell 0.1 percent in January after falling 0.8 percent in December. Prices for crude goods, which are used at the earliest stage of production, rose 3.7 percent after dropping 9.6 percent in December. Core crude goods prices fell 0.5 percent, the fourth straight monthly decrease.
Food Prices
Today's report showed food prices rose 0.8 percent, the biggest increase since a 0.9 percent jump in February of 2001. The January rise reflected higher costs for vegetables, eggs, chicken, dairy products and fish. In December, food prices were unchanged.
Prices for energy rose 0.1 percent in January after falling 3.9 percent in December and 3.4 percent in November. Gasoline prices rose 3.4 percent last month after falling 8.3 percent in December.
The futures price of unleaded gasoline, a gauge of the wholesale cost of fuel, reached a closing high of 62.84 cents a gallon on Jan. 4 at the New York Mercantile Exchange, compared with a low in December of 50.61 cents. Excluding food and energy, producer prices were tame.
Prices for men's apparel fell 0.5 percent in January, the same as in December. Compared with January of last year, men's clothing prices fell 2 percent.
Clothing Discounts
Timberland Co. said on Feb. 7 that its fourth-quarter profit fell 26 percent as the maker of hiking boots and outdoor clothing discounted merchandise. Jones Apparel Group Inc., the maker of Jones New York clothing and Nine West shoes, said a day earlier that its fourth-quarter profit dropped 51 percent as the company cut prices to reduce inventory.
Cigarette prices fell 1.9 percent in January, the largest decline in two years.
While computer prices rose 1.5 percent in January, they're 26.1 percent lower than they were a year ago. Gateway, the second- largest direct seller of personal computers, challenged its biggest rival, Dell Computer Corp., in late January, as it lowered prices on most personal computers and servers.
The battle among the computer makers pushed computer prices down 31 percent last year, compared with a 14 percent drop in 2000.
Light Trucks
Light truck prices fell 0.6 percent in January after a similar decrease in December. While, passenger car prices rose 0.7 after falling 0.4 percent in December, they were down 1.8 percent from January of last year.
Automakers last month replaced their no-interest loans with cash-back incentives. General Motors Corp. offered $2,002 cash back on all its models. Ford Motor Co.'s incentives included as much as $2,500 back on selected models.
That may keep prices low this month. DaimlerChrysler AG's Chrysler added regional discounts for the first time on the PT Cruiser as demand slows. Chrysler is offering $1,000 back in the Midwest and Northeast.
Prices for capital equipment fell 0.1 percent in January after no change the month before. Prices for consumer goods excluding food and energy fell 0.1 percent.
The February Blue Chip Consensus Forecast showed producer prices likely fell 0.6 percent during the first three months of the year. That compares with last month's consensus of a 0.5 percent increase for the first quarter.
Subdued inflation makes it easier for Federal Reserve policy makers to leave the overnight bank lending rate at a 40-year low of 1.75 percent to make sure the economy pulls out of the first recession in a decade.
``Businesses that make and distribute things have very little pricing power,'' said Vincent Boberski, senior economist at RBC Dain Rauscher Inc. in Chicago, before the report. ``Inflation should not be an issue for policy makers at least for the balance of 2002.''
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