Energy Costs Drive Up Wholesale Inflation
By Caren Bohan
Reuters
WASHINGTON (May 13) - U.S. wholesale prices jumped in April as energy costs recorded their biggest rise since just before the Gulf War, the government said on Thursday, but analysts saw little cause for concern in the inflation outlook.
The Producer Price Index, measuring prices paid to the nation's factories, farms and refineries, rose 0.5 percent last month after a 0.2 percent gain in March, the Labor Department said. Stripping out the volatile food and energy costs, the core PPI rose just 0.1 percent in April after a flat reading in the prior month.
The numbers were in line with the expectations of private economists. U.S. economists in a Reuters survey had predicted a 0.6 percent rise in the PPI and a 0.1 percent increase excluding food and energy.
Foreign stock markets rose on the data's release, with the London stock exchange extending its gains as traders saw the below-consensus PPI figure as allaying fears of an interest rate rise by the Federal Reserve.
"When you look at the crude (prices), that is taking out energy and food, you clearly see there is no inflation," Anthony Chan, economist at Banc One Investment Advisors, told Reuters Television.
The PPI is running at a year-on-year rate of 1.1 percent, the biggest 12-month rise since a 1.5 percent gain in the year to March 1997.
Because energy prices were behind the latest gain in the PPI, many economists have said a blip higher in the index would not suggest a broad trend of rising inflation pressures at the wholesale level. In fact, inflation is still expected to remain tame, though it may not keep falling as it has been in recent years.
Oil prices have zoomed higher because of a deal by the Organization of Petroleum Exporting Countries (OPEC) and non-OPEC oil producers to cut production in an effort to reduce the supply overhang. The energy component of the PPI climbed 5.1 percent, the largest increase since a 7.5 percent increase in October 1990, just before the start of the Gulf War. The surge follows a long decline in oil prices that began more than two years ago.
Gasoline costs soared 29.1 percent last month, the largest rise on record. Heating oil costs were up 14.3 percent. In other components, food costs fell 0.9 percent in April. Passenger car costs edged up 0.2 percent, and prices of capital equipment were flat.
Crude oil futures in New York hit $19.05 a barrel on May 5, the highest level since December 1997.
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