U.S. Producer Price Index rose 0.8% in September, led by 2.3% boost in energy prices; excluding food and energy, core index rose 0.2%
October 18, 2011
– A surge in energy costs drove wholesale prices up in September by the most in five months.
The Producer Price Index, which measures price changes before they reach the consumer, rose 0.8 percent in September. Energy prices jumped 2.3 percent, the biggest increase since March.
Food prices also rose sharply.
Exclude food and energy costs, which tend to fluctuate sharply from month to month, the so-called core prices increased 0.2 percent. Higher prices for pickup trucks accounted for one-third of the increase in core prices.
Wholesale prices had moderated in recent months, after rising sharply earlier this year. Fears of a possible recession in the U.S. and slower growth overseas had restrained inflation.
The price of commodities, such as oil and grains, generally fall when growth slows because that reduces demand. It can take several months for lower prices to reach the consumer.
Economists were expecting an increase in energy prices last month, but not quite to the degree in which they climbed.
"Inflation is not wildly out of control but it certainly isn't as tame as would be expected during this stage," said Jennifer Lee, a senior economist at BMO Capital Markets.
Wholesale gas prices surged 4.2 percent, the department said. That was the biggest jump since March. The cost of diesel fuel and liquefied petroleum gas also rose. Natural gas prices dipped.
That followed three months of declines in energy prices. Gas prices dropped toward the end of September, though too late to affect that month's data, according to economists at IHS Global Insight.
Wholesale energy prices have fallen for three straight months, dragged down by lower oil prices.
The price of oil fell 52 cents to $86.28 per barrel in Monday trading. It has tumbled 24 percent since May. That's helped reduce gas prices, which averaged $3.46 per gallon on Monday, according to AAA. Gas prices have moved up in recent days but are down from $3.60 per gallon a month ago.
Wholesale food prices rose in August by the most since February. Egg and chicken prices jumped in August, likely because of the higher cost of corn and other grains that are used for animal feed.
That trend could cool next year. The U.S. Department of Agriculture reported last week that farmers will likely finish next summer with a bigger surplus of corn than previously expected. A bushel of corn cost $6.38 in afternoon trading Monday. That's down from a record $7.99 in June.
Modest inflation has taken some of the pressure off the Federal Reserve to keep inflation in check by raising interest rates. Instead, the central bank can keep the short-term rate it controls at nearly zero, in an effort to support economic growth.
The Fed's informal inflation target is about 1.5 percent to 2 percent, at an annual rate. Last month, Fed policymakers said that inflation would decline to levels "at or below" the target, according to minutes released last week.
A small amount of inflation is good for the economy. It encourages businesses and consumers to spend and invest money sooner rather than later, before inflation erodes its value.
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