U.S. February producer prices rise 0.1% on energy, cigarettes, trucks

U.S. producer prices rose 0.1 percent in February as the cost of energy products, cigarettes, light trucks and household appliances increased.

The increase in wholesale costs followed a 0.8 percent increase in January, the same as was previously estimated, figures from the Labor Department showed today in Washington. Excluding food and fuel, so-called core prices rose 0.2 percent.

Energy costs stabilized late last year after crude oil lost 71 percent in value since a peak of $147.27 a barrel in July, helping to ease concerns that the U.S. may enter a period of deflation. Still, the recession is forcing sellers of other goods to cut prices or hold them steady amid slow demand, giving the Federal Reserve more flexibility to keep interest rates near record-low levels until the economy improves.

"There's just a huge amount of slack now in the U.S. economy and the global economy" that's keeping prices down, said Scott Brown, chief economist at Raymond James & Associates Inc. in St. Petersburg, Florida. "That's going to hang around for some time."

Economists forecast prices paid to factories, farmers and other producers would rise 0.4 percent, according to the median of 71 responses in a Bloomberg News survey. Estimates ranged from unchanged to a gain of 1.2 percent.

Separately, a Commerce Department report today showed housing starts in the U.S. unexpectedly surged in February from a record low. Work began on 583,000 homes at an annual rate, a 22 percent increase from January that was the biggest jump since 1990, the Commerce report said.

Core Prices

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

Compared with a year earlier, producer prices fell 1.3 percent in February. Excluding food and fuel, costs rose 0.4 percent in that period.

Producer prices are one of three monthly inflation gauges reported by Labor. Prices of goods imported into the U.S. fell 0.2 percent last month, Labor said last week.

Economists predict Labor will say tomorrow that consumer prices increased 0.3 percent last month, the same as in January, which saw the first gain in six months. Excluding food and energy costs, consumer prices rose 0.1 percent, according to a Bloomberg survey.

Fed Chairman Ben S. Bernanke said last week that the central bank is "not anticipating deflation."

'Stability'

"We are committed to price stability, we believe we have the tools in place to do that," Bernanke said March 10 in response to a question after a speech to the Council on Foreign Relations in Washington. "Right now both the objectives for price stability and the objectives for growth are pointing in the same direction and that is for strong support of the economy."

Fed policy makers are expected to announce tomorrow that they're keeping the benchmark overnight lending rate between banks in a record-low range of zero to 0.25 percent.

In today's report, the gain in producer prices was led by a 1.3 percent increase for energy, a 2.7 percent increase for cigarettes, the biggest gain in two years, and a 1.3 percent increase in the cost of light trucks.

Costs of intermediate goods, those used in earlier stages of production, fell 0.9 percent after declining 0.7 percent in January. Prices for raw materials, or so-called crude goods, fell 4.5 percent following a 2.9 percent drop.

Prices of computers fell 4.5 percent in the month, the biggest decline since January 2005.

Profit Outlook

Hewlett-Packard Co. Chief Executive Officer Mark Hurd last month lowered his annual profit forecast, citing a drop in PC prices and waning global demand for computers, printers and other equipment. On March 16, the company said it will cut the pay of workers in its Electronic Data Services unit by 10 percent in the month of April.

"The gap between where we are today and accomplishing our goals is widened by the current economic climate," the company said yesterday in a memo obtained by Bloomberg News. "Unfortunately, we need to take additional action."

Food prices fell 1.6 percent in February, the biggest drop in three years.

Other companies, meanwhile, have been able to raise prices. H.J. Heinz Co., the world's largest ketchup maker, last month posted a third-quarter profit, as Americans cooked more at home and the company raised prices 8 percent.

Also, Campbell Soup Co. said Feb. 23 that higher selling prices helped it offset some of its own greater costs and increased promotional spending.