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US core factory prices rise to highest
Source: Agencies |
February 17, 2011, Thursday
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UNITED States core producer prices in January rose to their highest rate in more than two years, hinting at a build-up in inflation pressures as the recovery gathers pace, a potentially troubling development for the Federal Reserve.
The core Producer Price Index, excluding food and energy, rose 0.5 percent, the highest since October 2008, the US Labor Department said yesterday.
The rise, which exceeded economists' expectations for a 0.2 percent gain, reflected a jump in pharmaceutical preparations, which accounted for 40 percent of the increase.
"The price increase might be a little troubling because it suggests that inflation is spreading across all raw materials," said James Meyer, chief investment officer at Tower Bridge Advisors in West Conshohocken, Pennsylvania.
"If you print money and have a stronger economy, you're going to have some inflationary pressures."
The rise in core PPI comes at a time when a surge in commodity prices has caused most advanced economies to raise red flags on inflation.
The Fed has so far shown little concern about a pickup in price pressures and officials have repeatedly said core consumer inflation remains too low for comfort.
Economists believe that could change.
"The Fed's contention has been that although inflation has been seen overseas, it's not yet impacted the US. More to the point, the Fed is not going to be concerned until it spills over into the core reading," said Michael Woolfolk, senior currency strategist at BNY Mellon in New York.
"What we see from this is that it has indeed spilled into the core and could force the Fed to rethink its outlook for the remainder of the year."
The government is expected to report today that the core consumer price index, excluding food and energy, rose 0.1 percent in January from December. Overall CPI is seen up 0.3 percent after rising 0.5 percent in December.
A second report from the Commerce Department showed housing starts jumped 14.6 percent to a seasonally adjusted annual rate of 596,000 units, the highest since September, from 520,000 units in December. Groundbreaking last month was lifted by a 77.7 percent jump in volatile multi-family homes. Single-family home construction fell 1 percent.
The core Producer Price Index, excluding food and energy, rose 0.5 percent, the highest since October 2008, the US Labor Department said yesterday.
The rise, which exceeded economists' expectations for a 0.2 percent gain, reflected a jump in pharmaceutical preparations, which accounted for 40 percent of the increase.
"The price increase might be a little troubling because it suggests that inflation is spreading across all raw materials," said James Meyer, chief investment officer at Tower Bridge Advisors in West Conshohocken, Pennsylvania.
"If you print money and have a stronger economy, you're going to have some inflationary pressures."
The rise in core PPI comes at a time when a surge in commodity prices has caused most advanced economies to raise red flags on inflation.
The Fed has so far shown little concern about a pickup in price pressures and officials have repeatedly said core consumer inflation remains too low for comfort.
Economists believe that could change.
"The Fed's contention has been that although inflation has been seen overseas, it's not yet impacted the US. More to the point, the Fed is not going to be concerned until it spills over into the core reading," said Michael Woolfolk, senior currency strategist at BNY Mellon in New York.
"What we see from this is that it has indeed spilled into the core and could force the Fed to rethink its outlook for the remainder of the year."
The government is expected to report today that the core consumer price index, excluding food and energy, rose 0.1 percent in January from December. Overall CPI is seen up 0.3 percent after rising 0.5 percent in December.
A second report from the Commerce Department showed housing starts jumped 14.6 percent to a seasonally adjusted annual rate of 596,000 units, the highest since September, from 520,000 units in December. Groundbreaking last month was lifted by a 77.7 percent jump in volatile multi-family homes. Single-family home construction fell 1 percent.
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