Higher energy prices boost US producer inflation in January

WASHINGTON: US producer prices rose more than expected in January, recording their largest gain in more than four years amid increases in the cost of energy products and some services, but a strong dollar continued to keep underlying inflation tame.
The Labor Department said on Tuesday its producer price index for final demand jumped 0.6 per cent last month. That was the largest increase since September 2012 and followed a 0.2 per cent rise in December.
Despite the surge, the PPI only increased 1.6 per cent in the 12 months through January. That followed a similar gain in the 12 months through December. Economists polled by Reuters had forecast the PPI rising 0.3 per cent last month and the year-on-year increase moderating to 1.5 per cent.
The rise in producer prices comes as manufacturers report paying more for raw materials. The Institute for Supply Management’s (ISM) prices index surged in January to its highest level since May 2011. The ISM index, which is closely correlated to the PPI, has increased for 11 straight months.
The gains in PPI last month largely reflected increases in the prices of commodities such as crude oil, which are being boosted by a steadily growing global economy. Oil prices have risen above $50 per barrel. But with the dollar strengthening further against the currencies of the United States’ main trading partners and wage growth still sluggish, the spillover to consumer inflation from rising commodity prices is likely to be limited.
A government report on Friday showed import prices excluding fuels fell in January for a third straight month. Data on Wednesday is expected to show the consumer price index increased 0.3 per cent in January after a similar gain in December, according to a Reuters survey of economists.
Last month, prices for final demand goods increased 1 per cent, the largest rise since May 2015. The gain accounted for more than 60 per cent of the increase in the PPI. Prices for final demand goods advanced 0.6 per cent in December.
Wholesale food prices were unchanged last month after climbing 0.5 per cent in December. — Reuters