Wholesale prices in U.S. Rise at slower pace as fuel drops

Wholesale prices in the U.S. rose at a slower pace in July as fuel costs dropped by the most in eight months.

The 0.1 percent increase in the producer price index matched the median forecast of economists surveyed by Bloomberg and followed a 0.4 percent gain the prior month, a Labor Department report showed today. The so-called core measure, which strips out volatile food and fuel, increased 0.2 percent.

Global growth has struggled to gain momentum as the U.S. recovery plods on, Europe grapples with geopolitical tensions and China contends with a property slump and investment-spending slowdown. Limited price pressures give the Federal Reserve room to maintain an accommodative position as they scale back their monthly bond purchases, which are on pace to end in October.

"It's just more of the same," Stuart Hoffman, chief economist at PNC Financial Services Group Inc. in Pittsburgh, said before the report. " From that point of view, at the wholesale level, there's not much inflation to pass through."

Manufacturing in the region covered by the Federal Reserve Bank of New York expanded at a slower pace in August, another report showed today. The central bank's Empire State Index fell to 14.7 from a four-year high of 25.6 in July. Readings greater than zero signal growth.

Shares Climb

Stock-index futures held earlier gains after the reports. The contract on the Standard & Poor's 500 Index maturing in September rose 0.2 percent to 1,958.3 at 8:36 a.m. in New York.

The median estimate was based on a survey of 70 economists. Projections ranged from a drop of 0.1 percent to a 0.4 percent gain. Wholesale prices excluding food and energy were forecast to rise 0.2 percent, the same as in June.

Compared with a year before, companies paid 1.7 percent more for goods and services, down from a 1.9 percent rise in June. The core index increased 1.6 percent in the 12 months ended July after a 1.8 percent gain.

The wholesale prices report was expanded this year to include 75 percent of all U.S. goods and services, up from about a third for the old metric, which tallied the costs of goods alone. The index now includes prices received for services, government purchases, trade and construction.

The cost of services increased 0.1 percent in July, reflecting higher transportation charges for moving freight on railroads and trucks. Prices for goods were unchanged last month and were up 2 percent since July 2013.

Fuel Costs

Energy costs dropped 0.6 percent last month, the most since November, after a 2.1 percent jump in June. Gas prices have been falling for almost two months, which may be keeping a little more money in consumers' pockets. The average price of a gallon of regular unleaded gas was $3.47 on Aug. 13, down from this year's peak of $3.70 in April.

The decrease in fuel last month was offset by a 0.4 percent increase in wholesale food costs.

Companies such as Keurig Green Mountain Inc. are planning to pass some of those higher costs on to customers. The maker of home-brewing machines for coffee, tea and other beverages said yesterday it will raise prices by up to 9 percent on all portion packs starting Nov. 3. The increase reflects the continued rise in the price of cocoa and green coffee, as well as higher costs for packaging materials, energy and transportation, according to a statement.

Charging More

"Many of our competitors already have implemented price increases in light of the reality of sustained input cost increases," John Whoriskey, Keurig's president of U.S. sales and marketing, said in the statement. "After careful review, we determined that it is necessary for us to adopt a small price increase in light of these higher costs."

Producer prices for total finished goods related to consumer spending increased 0.2 percent in July after rising 0.5 percent the month before. That group represents about 67 percent of the revamped PPI, and helps provide insight into longer-term changes in the CPI.

The possibility of "inflation running persistently below 2 percent has diminished somewhat," the Federal Open Market Committee said in a statement last month, with price increases rising closer to its goal. Aside from inflation, Fed officials led by Janet Yellen also said the labor market still has plenty of room for improvement, bolstering the case for keeping interest rates low.

The personal consumption expenditures price index, the Fed's preferred inflation gauge, rose 1.6 percent in June from a year earlier, up from a year-over-year gain of 1.2 percent in January.

Today's producer price index is one of three monthly inflation gauges from the Labor Department. The CPI, due out Aug. 19, climbed 0.1 percent in July according to the Bloomberg survey median. A report yesterday showed the cost of imported goods fell 0.2 percent last month.

To contact the reporter on this story: Victoria Stilwell in Washington at vstilwell1bloomberg.net To contact the editor responsible for this story: Carlos Torres at ctorres2bloomberg.net