By Jeffry Bartash, MarketWatch
WASHINGTON (MarketWatch) — U.S. wholesale costs rose in January for the first time in four months because of a spike in vegetable prices, but inflation at the producer level was generally muted.
The producer price index rose a seasonally adjusted 0.2% last month, the Labor Department said Wednesday. Economists surveyed by MarketWatch had predicted a 0.4% increase.
The cost of food advanced 0.7% to account for more than three-quarters of the increase in producer prices. Vegetables soared 39% — the biggest gain in almost one year — to drive up food costs.
Energy prices fell a seasonally adjusted 0.4%, but the index failed to capture the surge in gasoline costs that started shortly after the new year began. Higher fuel costs are expected to show up in the February PPI report.
Even with higher food prices and gasoline on the rise, inflation at the wholesale level is still subdued. The increase in producer prices over the past 12 months totaled just 1.4%, barely changed from the prior month.
Minus the volatile categories of food and energy, so-called core wholesale prices also rose 0.2%. That matched the MarketWatch forecast.
The biggest increase in wholesale costs outside the food category occurred among pharmaceutical products, precise industrial instruments and communications-networking equipment. Car prices dropped.
Over the past 12 months the gain in the core rate fell to 1.8% from 2.0% in December, marking the first time it’s slipped below 2% since February 2011.
Investors pay close attention to the core rate because it’s viewed as a more reliable barometer of short-term inflation trends. With inflation quiet, the Federal Reserve won’t feel in any rush to alter its massive bond-buying program designed to reduce interest rates and make loans for consumers and businesses easier to come by.
Meanwhile, the price index of intermediate goods such as cloth or rolled steel was unchanged in January. The cost of crude goods climbed 0.8%, however.
Steady increases in wholesale costs can squeeze profits and eventually translate into higher prices of consumer goods and services, but the relationship is not precise. Companies raise or lower prices for a number of reasons.
Lower wholesale costs can boost earnings and ease pressure on companies to raise prices on consumers. In some cases, businesses will even trim prices, especially for goods such as gasoline that are sensitive to ups and downs in commodity costs.
A measure of whether Americans are paying more for goods and services, the consumer price index, will be released Thursday. Economists surveyed by MarketWatch project the CPI edged up 0.1% in January.
Unlike the PPI, the consumer price index also measures changes in the cost of services — things like hair cuts, doctor visits or day care. Wholesale prices only reflect the cost of goods.