http://www.bloomberg.com/apps/news?pid=20601087&sid=ajft4LIOq7bQ&refer=homeU.S. Producer Prices Fall in March; Core Unchanged
By Shobhana Chandra
April 14 (Bloomberg) -- Prices paid to U.S. producers unexpectedly fell in March after two months of gains, indicating the recession is keeping inflation under control.
The 1.2 percent decrease followed a 0.1 percent gain in February, figures from the Labor Department showed today in Washington. Excluding fuel and food, so-called core prices were unchanged. Over the last 12 months, wholesale expenses fell by the most in almost six decades.
Inflation is expected to stay in check partly because the global downturn has kept a lid on the cost of fuel and other commodities. Economists and some Federal Reserve policy makers have expressed concern about deflation, an extended drop in prices, which erodes profits, makes debts harder to repay and can cause consumers and businesses to delay purchases.
“We’re not likely to see upward pressure on prices, the risk is in the opposite direction,” Michael Moran, chief economist at Daiwa Securities America Inc. in New York, said before the report. “The near-term outlook is favorable for inflation” to remain tame, he said.
Another government report today showed retail sales in the U.S. unexpectedly fell in March as soaring job losses forced consumers to pull back. The 1.1 percent decrease followed a 0.3 percent gain in February that was stronger than previously estimated, the Commerce Department said today in Washington. Auto dealers, electronics stores and restaurants led the decline.
Economists’ Estimates
Prices paid to factories, farmers and other producers were forecast to remain unchanged in March, according to the median estimate of 71 economists in a Bloomberg survey. Estimates ranged from a decline of 0.8 percent to a gain of 1 percent.
Prices excluding food and fuel were estimated to rise 0.1 percent after increasing 0.2 percent the prior month.
Companies paid 3.5 percent less for goods in the 12 months ended in March, the biggest drop since January 1950, after a 1.3 percent year-over-year drop the prior month. Excluding food and energy, prices increased 3.8 percent from a year earlier, following a 4 percent gain the prior month.
Producer prices are one of three monthly inflation gauges reported by Labor. Prices of goods imported into the U.S. rose in March for the first time in eight months, the department said on April 9. The import-price index increased 0.5 percent on a jump in petroleum costs, after a revised 0.1 percent decline in February. Excluding energy, prices fell 0.7 percent.
Oil Prices
Crude oil on the New York Mercantile Exchange, which surged to a record $147.27 a barrel in July, had plunged by more than 70 percent toward the end of the year. Oil prices, while climbing because of cuts to production rates, have averaged about $50 so far this month.
The global recession has cut into demand for other goods, making it hard for companies to raise prices and helping contain inflation as the Fed keeps its attention on unfreezing credit and helping to bolster the economy.
A Labor report tomorrow may show the cost-of-living index fell 0.1 percent in the 12 months ended March, the first year- over-year drop since 1955, according to the Bloomberg survey.
“Inflation will remain subdued,” the Fed said in its March 18 policy statement. The central bank has lowered its key interest rate to near zero and is flooding the market with cash to spur borrowing and spending and help pull the economy out of the slump.
Some Fed policy makers have said they are more worried about a sustained drop in prices.
Deflation Worries
“For some time to come, disinflation, and even deflation, will represent greater risks than inflation,” San Francisco Fed President Janet Yellen said in a speech on March 25.
In today’s report, the drop in wholesale prices was led by a 5.5 percent decline in energy. The cost of gasoline and home heating oil each fell by 13 percent. Food became 0.7 percent cheaper.
Costs of intermediate goods, those used in earlier stages of production, declined 1.5 percent in March after dropping 0.9 percent in the prior month, today’s figures showed. Prices for raw materials, or so-called crude goods, fell 0.3 percent.
Nucor Corp., the largest U.S. steelmaker by market value, on March 17 revised its first-quarter forecast from a profit to a loss because of lower-than-expected demand. Steel prices have plunged by more than half from a record in July, prompting production cuts at the world’s largest producers of the metal, including Nucor and Nippon Steel Corp.
“The unprecedented speed and magnitude of the global economy’s decline to depressed levels not seen in our lifetime have presented severe challenges in 2009,” Nucor Chief Executive Officer Dan DiMicco said in a statement. “The economy has fallen off a cliff, and there is no visibility as to the timing of the recovery.”
Prices for capital equipment fell 0.2 percent, and consumer goods prices dropped 1.5 percent, the report showed.
