Increase in U.S. Wholesale Prices Is Most in Nine Months

American wholesale prices rose in July by the most in nine months as energy costs surged, reinforcing expectations the Federal Reserve will raise interest rates to fight faster inflation.The 1% increase in the producer price index was twice the median economist forecast and also reflected higher wholesale prices for drugs and automobiles, the Labor Department’s report showed today. Excluding energy and food, the so-called core measure rose 0.4%, the most since January.The wholesale figures contrasted with a report yesterday that suggested inflation at the consumer level was tame in July. The jump in fuel costs to records again this month may prompt more producers to pass increases on to customers, economists said. One inflation gauge the Fed monitors averaged 2% in the past four quarters, the upper limit of its 2005 forecast.“The Fed will see it as taking a little of the shine off the good core CPI yesterday,” said Stuart Hoffman, chief economist at PNC Financial Services Group, who correctly predicted today’s producer price index. The consumer prices report “was probably either overstated or will bounce back and the truth lies in between.”Fed policymakers said August 9 that pricing pressures remain “elevated” and signaled that they will keep raising rates to limit inflation. The Fed already raised the overnight bank lending rate at 10 straight meetings, to 3.5%.The effect on consumers may still be limited because competition makes it hard for companies and retailers to raise prices, other economists said. “It’s more of a margin squeeze,” the chief North American economist at Merrill Lynch & Company in New York, David Rosenberg, said in an interview.Economists were expecting a 0.5% rise in producer prices, based on the median estimate of 63 economists surveyed by Bloomberg News. The Treasury’s 4 1/4% note maturing in August 2015 fell 1 /2 point, pushing up the yield 6 basis points to 4.26% at 4:59 p.m. in New York. Producer prices rose 4.6% for the 12 months ended in July compared with a 3.6% year-over-year gain the previous month. Core prices were 2.8% higher, the biggest year-over-year increase since November 1995.Energy prices jumped 4.4% last month after climbing 2% in June. Prices paid to drugmakers jumped 1.3% in July, the most since April of last year. Prices rose 1.5% for cars, the biggest since March 2003, following a 1% decline in June. Light trucks rose 1.4%.The increases for autos contrasted with Tuesday’s figures that focused on what consumers paid. Automakers including General Motors Corporation changed the types of discounts they offer in June and July, making wholesale prices more volatile. Economists also said the government may be finding it hard to adjust for seasonal variations, making it better to take a longer term view.“These changes seem suspect because manufacturers adopted aggressive discounting programs during July, programs that were evident in the 1% decline in vehicle prices in the CPI,” a chief economist at Daiwa Securities America in New York, Michael Moran, said. “We view the change in vehicle prices in the PPI as a random shift and one that does not reflect reality.”The chief economist at RBS Greenwich Capital, Stephen Stanley, said core consumer prices excluding the vehicle costs would have risen 0.2% in July after a 0.1% in June.The Labor Department said Tuesday higher gasoline and other energy costs pushed up the consumer price index by 0.5% in July, the most in three months. Cheaper cars and clothing helped ease the burden of higher prices at the pump. Excluding energy and food, prices rose 0.1%.So far this year, producer prices are rising at a 3.9% annual rate compared with a 3.6% increase at the same time last year. Core prices are rising at a 2.6% annual pace, up from a 1.7% rate a year ago. Crude oil and gasoline prices jumped in July on their way to records this month on speculation on that fuel demand may surpass production capacity. Crude futures rose to a record $67.10 a barrel last week.

Increase in U.S. Wholesale Prices Is Most in Nine Months

Increase in U.S. Wholesale Prices Is Most in Nine Months

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