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Higher climb in US producer prices as firms lift earnings

UNITED States producer prices climbed more than forecast last month as companies tried to boost earnings at the start of the year before demand weakened even more.

The 0.8-percent increase in wholesale costs was higher than projected and followed a 1.9-percent drop in December, figures from the Labor Department showed yesterday in Washington. Excluding food and fuel, so-called core prices rose 0.4 percent, also more than anticipated.

Auto, computer and pharmaceutical makers were among the industries boosting prices last month even as sales slumped. The worsening global recession will likely limit inflation and minutes of the Federal Reserve's January meeting showed some policy makers saw a threat of broad declines in prices.

"It could be just a matter of time before we see a decline in core prices," Jonathan Basile, an economist at Credit Suisse Holdings in New York, said before the report. "Inflation as a risk is at the bottom of the Fed's list of concerns. As long as we have rising unemployment, firms will be forced to keep prices low." Credit Suisse forecast a 2-percent gain in prices.

The number of Americans collecting unemployment benefits jumped to 4.99 million two weeks ago, breaking a record for a fourth straight time, another report from the Labor Department also showed. First-time applications for unemployment benefits were unchanged at 627,000 last week, higher than economists projected and signaling the job market is still deteriorating.

Prices paid to factories, farmers and other producers were forecast to rise 0.3 percent, according to the median estimate of 72 economists in a Bloomberg News survey. Estimates ranged from a decline of 1.1 percent to a gain of 2 percent.

Prices, excluding food and fuel, were projected to rise 0.1 percent, the survey showed.

Companies paid 1 percent less for goods over the last 12 months, the biggest year-on-year drop since October 2006.

Consumers are seeing the benefit of previous decreases in wholesale expenses. A Labor report today may show the cost of living index fell 0.1 percent in the 12 months ended last month, the first year-on-year drop since 1955, according to the survey.

Fed Bank of St Louis President James Bullard said this week the US seriously faces a risk of "sustained deflation," and called on the central bank to avert a price fall by boosting the money supply.


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