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US producer prices rise strongly
December 13, 2017 | 1:21 PM
by Reuters
Inflation data on Wednesday is expected to show the consumer price index rising 0.4 per cent in November after nudging up 0.1 per cent in October. - Reuters file picture
 
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Washington: US producer prices rose in November as gasoline prices surged and the cost of other goods increased, leading to the largest annual gain in nearly six years.

The fairly strong report from the Labor Department on Tuesday suggested a broad acceleration in wholesale price pressures, which could assuage concerns among some Federal Reserve officials over persistently low inflation.

"This demand-led price push from higher commodity prices is a classic early warning signal that consumer goods will also see increasing inflationary pressures," said Chris Rupkey, chief economist at MUFG in New York.

The Labor Department said its producer price index (PPI) for final demand increased 0.4 per cent last month, advancing by the same margin for three straight months. In the 12 months through November, the PPI shot up 3.1 per cent. That was the biggest gain since January 2012 and followed a 2.8 per cent rise in October.



Economists had forecast the PPI rising 0.3 per cent last month and increasing 2.9 per cent from a year ago.

A key gauge of underlying producer price pressures that excludes food, energy and trade services also rose 0.4 per cent last month. The so-called core PPI had increased by 0.2 per cent for two straight months. It rose 2.4 per cent in the 12 months through November, the largest gain since the series started in August 2014, after increasing 2.3 per cent in October.

The dollar firmed against a basket of currencies on the data, while prices for US Treasuries fell. US stock index futures were trading mostly higher.

The broad rise in producer prices supports views that weak inflation readings experienced through the first half of the year probably were temporary. Some Fed officials worry that the factors that held down inflation early in the year could become more persistent.

The Fed officials were due to gather for a two-day policy meeting starting later on Tuesday. The US central bank is expected to raise interest rates on Wednesday, for a third time this year, with a robust labor market and strengthening economy expected to overshadow policymakers' earlier concerns about tame inflation.

Inflation moving up

The central bank tracks the personal consumption expenditures (PCE) price index excluding food and energy, which has undershot the Fed's 2 per cent target for nearly 5-1/2 years.

"The pickup over the year will be welcomed by the Fed as an indication that inflation is gradually moving up," said Sarah House, an economist at Wells Fargo Securities in Charlotte, North Carolina.

Inflation data on Wednesday is expected to show the consumer price index rising 0.4 per cent in November after nudging up 0.1 per cent in October, according to a Reuters survey. The core CPI is seen rising 0.2 per cent for a second straight month.

Last month, gasoline prices surged 15.8 per cent, the biggest gain since August 2009, after dropping 4.6 per cent in October. Gasoline accounted for two thirds of the 1.0 per cent increase in the final demand goods index.

There were also increases in the prices of light motor trucks, pharmaceutical preparations, beef, residential electricity and jet fuel.

Wholesale food prices rose 0.3 per cent in November after increasing 0.5 per cent in October. Prices for services gained 0.2 per cent last month after increasing 0.5 per cent in October.

Core goods climbed 0.3 per cent in November, rising by the same margin for a third consecutive month. Prices for passenger cars accelerated 0.5 per cent last month, the largest increase since December 2016, after being unchanged in October.

The cost of healthcare services was unchanged last month after rising 0.3 per cent in October. Those costs feed into the Fed's preferred core PCE price index.

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