Inflation roars back with 2 percent wholesale price jump
Dec 19 10:01 AM US/Eastern
US inflation made a surprise comeback in November with a surprising 2.0 percent rise in wholesale prices, the biggest monthly jump in 30 years, the government has reported.
The Labor Department's producer price index (PPI) was far ahead of Wall Street expectations of a 0.5 percent rise and showed strong increases in a wide range of goods.
The core index, which excludes volatile food and energy prices, was up 1.3 percent -- the largest increase in more than 25 years -- against expectations of a 0.2 percent rise.
The surprise jump in prices challenges expectations from economists and the Federal Reserve that inflation is under control.
But some analysts said the increase may be a one-month quirk.
"The November increases in producer prices should not be viewed with alarm, because of past monthly declines," said Peter Morici, economist at the University of Maryland.
"Over the last year, producer prices, including food and energy, have risen only 0.9 percent, and consumer price inflation is likely to moderate through the early months of 2007."
Because the PPI fell 1.6 percent in October, some said the latest report simply smoothes out the bumps.
"The two months are best viewed as a net 0.4 percent increase, or about 0.2 percent per month," said analysts at Briefing.com. "This doesn't change the overall outlook for consumer inflation."
The latest report showed energy prices rose 6.1 percent in the month, the sharpest gain since February 2003, just before the US-led invasion of Iraq. Within the sector, gasoline prices rose 17.9 percent, the biggest increase since June 2000.
Light truck prices rose a record 13.7 percent, shattering the prior record set in July 1980, when truck prices rose 4.9 percent.
Intermediate goods, which are partially processed materials, rose 0.7 percent in the month, the sharpest rise since May.
The PPI report is one factor considered by the Federal Reserve, which has held its base rate steady since August but has warned it may hike rates again if inflation remains a problem.
Some analysts say the Fed is in a bind because inflation remains troublesome despite soft economic growth.
But Stephen Gallagher at Societe Generale said that the PPI report was skewed by energy costs and auto prices at the wholesale level that may not affect consumers.
"Auto and light truck prices are soft at the consumer level and will remain soft for some time as auto companies work down currently excessive inventory positions," he said.
"The core we should be watching is ex-motor vehicles at 0.2 percent," he said. "This is what the Fed will consider and the Fed will view auto prices as tame."
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