U.S. February Producer Prices Have Biggest Gain in a Decade on Oil Costs
By Vincent Del Giudice
U.S. Producer Prices Rose 1% in Feb., Biggest Gain in Decade
Washington, March 16 (Bloomberg) -- Prices paid in February
to U.S. factories, farmers and other producers posted the biggest
gain since the 1990 Persian Gulf crisis. A surge in the cost of
oil obscured a drop in the prices of autos, computers and drugs.
The Labor Department's producer price index rose 1 percent
last month, and the core rate of the PPI, which excludes food and
energy, rose 0.3 percent during the month.
February's increase was the biggest since a 4 percent rise
in October 1990, when oil prices were climbing following Iraq's
invasion of Kuwait.
``The pressure is starting to mount,' said Christopher Low,
an economist at First Tennessee Capital Markets in New York,
before the report. ``Rising crude and intermediate materials
prices will come through to the PPI this summer if the economy
doesn't slow soon.'
In January, the PPI was unchanged and the core rate declined
0.2 percent. Before the report, analysts expected 0.6 percent
increase in the February PPI and a 0.3 percent rise in the core
rate.
February's PPI was 4 percent higher than February 1999, up
from a 2.5 percent year-over-year increase in January, and the
largest . That follows a 3 percent increase in the overall PPI
for 1999, an oil-led rise that was the largest since 1990.
The core CPI rose 1 percent in February compared with a year
ago. That's up from January's 0.8 percent year-over-year
increase, and follows a 0.9 percent rise for all of 1999.
In another report today, the Labor Department said first-
time claims for state unemployment benefits fell 19,000 to a
seasonally adjusted 263,000 last week -- the lowest in 26 years.
Claims rose 6,000 to 281,000 the previous week. The four-week
moving average for jobless claims fell to 271,750 -- also the
lowest in 26 years -- from 277,500.
Energy Prices Soar
Producer energy prices rose 5.2 percent in February, the
biggest increase since October 1990, reflecting a 30.6 percent
jump in the cost of home heating oil and a 12.9 percent rise in
gasoline prices. Producer energy costs rose 0.7 percent in
January.
Oil prices have tripled since December 1998. On March 7,
crude oil surged above $34 a barrel for the first time in more
than nine years on concern that the Organization of Petroleum
Exporting Countries won't increase supplies enough next month to
prevent shortages.
Gasoline pump prices, meantime, are at a record high. OPEC
members cut production last year to bump prices higher. And
yesterday, crude oil futures for April delivery traded in New
York closed at $30.72. Oil prices could fall as low as $25 a
barrel by November, according to Band of America Securities
analysts in New York, reflecting stepped up domestic production
and an increase in output from OPEC counties.
FedEx Corp.'s Federal Express, the world's largest overnight-
shipping company, plans to charge 1 percent more starting April 1
for most domestic and international shipments to help make up for
higher fuel costs. Prices for jet fuel delivered at New York
harbor have more than doubled to 85.2 cents a gallon from 33.4
cents a year ago, while prices for diesel fuel have climbed 54
percent to $1.46 a gallon. Federal Express, based in Memphis,
Tennessee, operates about 650 aircraft and 44,500 trucks and
other vehicles.
Tobacco and Food
Tobacco prices rose 5.6 percent in February after falling
4.2 percent in January. Cigarette prices rose 6.3 percent last
month. Philip Morris Cos., the world's largest tobacco company,
raised U.S. cigarette prices to distributors by 13 cents a pack,
or about 7 percent, to help boost profit and pay for rising taxes
and legal-settlement payments, analysts said. The increase was
the seventh in about two years.
Food prices increased 0.4 percent in February, after rising
0.1 percent in January. In other categories, computer prices fell
3.3 percent in February, auto prices fell 1.2 percent and
prescription drug prices fell 0.2 percent.
Intermediate goods prices rose 0.8 percent last month after
rising 0.4 percent the previous month. Intermediate goods prices
excluding food and energy rose 0.2 percent.
Crude Goods Cost More
Crude goods prices rose 4.2 percent last month after rising
2.7 percent the previous month. Crude goods prices excluding food
and energy fell 0.2 percent.
The report ``could be evidence that the rise in energy
prices is seeping into other sectors of the economy,' said
William Sullivan, an economist at Morgan Stanley Dean Witter in
New York, before the report. It could also suggest manufacturers
have more ability to raise prices, he said.
And there's evidence higher prices are eroding corporate
profits. Procter & Gamble Co. shares plunged 31 percent on March
7, or more than $27 a share, after the biggest U.S. maker of
household goods said fiscal third-quarter profit will fall
because raw materials costs surged. The company can't raise
prices fast enough to cover rising costs of oil and the pulp used
in tissue products and still be competitive.
Pulp prices have jumped 30 percent during the past year
because of higher demand in Asia, Europe and North America. The
Cincinnati-based company has announced a price increase to
retailers on Bounty towels and Charmin tissue that takes effect
in April.
Fed Action Expected
Investors, in turn, are bracing for another interest rate
increase from Federal Reserve policy-makers next week -- mostly
because the economy shows few signs of slowing after growing in
the final three months of 1999 at the fastest pace in 3 1/2
years. The Federal Open Market Committee, the Fed's policy-
setting panel, meets Tuesday and has raised the overnight bank
lending rate four times since June to guard against accelerating
inflation.
Still, businesses have mostly been able to absorb rising
commodity costs through greater use of computers and other
technology. Worker productivity rose in the fourth quarter at a
6.4 percent annual rate, the fastest pace in seven years. Labor
costs, which account for two-thirds of consumer prices, declined
in the fourth quarter. |
