Energy Costs Push April Wholesale Prices Higher

Companies paid more for raw materials and factory goods in April, mostly because energy prices jumped for the seventh straight month.

The Producer Price Index, which measures price changes before they reach the consumer, rose 0.8 percent last month, the Labor Department said. That's slightly above the 0.7 percent gain in March. Excluding the volatile food and energy categories, the core index increased 0.3 percent, the same as in the previous month.

Over the past 12 months, the index has increased 6.8 percent, the biggest gain in nearly three years. Outside of food and energy, prices rose 2.1 percent, up from a 1.9 percent gain in March.

Turmoil in the Middle East and rising demand from fast-growing developing countries have pushed up the price of oil and gas since last summer. The costs of corn, wheat, cotton and other commodities have also jumped due to strong global demand. That's raised worries among some economists that consumer prices could also jump and inflation could surge.

But some signs in recent days suggest that inflation pressures could cool in the coming months. Oil prices dropped Thursday to near $96 a barrel due to expectations that global demand will slow this year. The price was about $114 a barrel last week. Prices of corn and other grains also fell Wednesday.

Paul Dales, an economist at Capital Economics, said higher energy and agricultural commodity prices could push the 12-month increase in the index to 8 percent in the coming months. But he said it would be a temporary spike.

"With commodity prices now falling, both producer and consumer price inflation are likely to drop sharply in the second half of the year," Dales said.

Sharp increases in the prices of tires and civilian aircraft helped push up the core index. Civilian aircraft prices rose by the most in nearly seven years, and the cost of tires soared 4.8 percent, the most in nearly 37 years.

Passenger car prices rose 0.5 percent. Part of the reason was demand increased. But the Japan's earthquake and tsunami may have also slowed the production of cars. That prompted some automakers to phase out rebates, leading to higher prices, according to economists at Deutsche Bank.

Food prices rose 0.3 percent last month, after falling in March. Egg prices rose by nearly 57 percent, the most on record, and the cost of fresh fruit and beef and veal also moved up.

Businesses Boost Inventories

A separate report Thursday showed that businesses added to their stockpiles for a 15th straight month in March. Their sales rose for a ninth consecutive month, suggesting factory production will remain strong in coming months.

The Commerce Department reported that businesses increased inventories 1 percent in March while sales rose an even larger 2.2 percent, the biggest sales gain in a year.

The rise in inventories pushed total stockpiles to $1.48 trillion. That is a level that economists consider to be normal for this stage of the recovery. It is 12.1 percent higher than the recent low of $1.32 trillion reached in September 2009.

Healthy gains in sales and inventory restocking should translate into strong orders to U.S. factories in coming months, spurring further gains in industrial production and manufacturing employment.

For March, inventories posted a 1.1 percent rise at both the manufacturing level and the wholesale level. Inventories held by retailers rose by 0.9 percent.

Sales were up strongly at all levels in March, led by a 2.9 percent rise in sales at the wholesale level.

Businesses had drastically slashed inventories during the recession as they struggled to contain costs. The switch back to inventory rebuilding has played a major role in boosting overall economic growth in this recovery, which began in June 2009.

Source: http://www.npr.org/2011/05/12/136234889/gas-food-push-april-wholesale-prices-higher?ft=1&f=1017

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