U.S. Core Producer Prices Climb Fastest in Over a Year

March 18, 2008
Core prices, which strips out volatile food and energy costs, rose 0.5% from January, the largest gain since November 2006.

The U.S. Labor Department's monthly Producer Price Index (PPI), which measures inflation pressures before they reach the consumer, showed a 0.3% increase in February following a 1% increase in January and a 0.3% decline in December.

Core prices, which strips out volatile food and energy costs, rose 0.5% from January, the largest gain since November 2006.

Producer prices have now risen an unadjusted 6.4% over the past year. Core prices have risen 2.4% in the past 12 months, the largest yearly gain since October.

The inflation numbers came as Federal Reserve policymakers met to decide interest rates under market expectations of another deep reduction amid severe financial markets turmoil. The Fed was widely expected cut at least a half-point off its base federal funds rate, currently pegged at 3%.

The central bank has slashed borrowing costs by 2.25 percentage points since September to shore up slowing economic growth, but economists say inflationary pressures could hamper the Federal Reserve's margins for lowering rates. Rising producer prices could make it harder for the Federal Reserve to continue lowering borrowing costs as interest rate reductions could fuel higher prices.

Robert Brusca, an analyst at FAO Economics, called the February PPI report "a disaster" but stressed it was less important than consumer prices inflation. "Sort of like a hurricane hitting your house, but not your real house, but your dollhouse," he said. Brusca said the PPI showed some inflationary pressure, "but it is not being passed on."

Energy prices in February drove the rise in overall wholesale inflation, rising 0.8% gain and offsetting a 0.5% decline in food prices. Within the energy sector, gasoline prices rose 2.9% and natural gas prices rose 5.7%, the largest gain since October 2005. Liquefied petroleum gas prices fell 9.7%, the largest decline since September 2006.

Copyright Agence France-Presse, 2008

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