Producer Prices, excluding Food, Energy, Increase More than Forecast

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from Bloomberg:



U.S. Producer Prices, Minus Food, Energy, Rise 0.4% (Update3)

By Courtney Schlisserman

May 20 (Bloomberg) -- Prices paid to U.S. producers, excluding food and fuel, rose more than forecast in April, reflecting increases in automobile and furniture costs.

The 0.4 percent gain in so-called core prices was twice as big as anticipated and followed a 0.2 percent increase in March, the Labor Department said today in Washington. A drop in energy costs and unchanged food expenses held the total price measure to a 0.2 percent gain.

Soaring raw-material costs are likely to hurt profits as a slowing economy prevents companies from raising prices enough to cover expenses. A report last week showed prices paid by consumers rose less than forecast in April.

Businesses ``have considerable pipeline cost pressures,'' said Aaron Smith, a senior economist at Moody's Economy.com in West Chester, Pennsylvania. While companies may find it tough to pass the costs on to consumers given the economic slowdown, today's figures are ``a reminder that inflation pressures reside even as we have slower growth,'' he said.

Treasury securities rallied, with benchmark 10-year notes yielding 3.80 percent at 9:39 a.m. in New York, down from 3.83 percent late yesterday.

Economists' Forecasts

Economists forecast producer prices would rise 0.4 percent, according to the median of 70 projections in a Bloomberg News survey. Estimates ranged from no change to a 1 percent gain. Excluding food and energy costs, producer prices were expected to rise 0.2 percent, according to the Bloomberg survey.

Factories, farmers and other producers were paid 6.5 percent more in April than a year earlier. That compares with a 6.9 percent gain for the 12 months ended in March.

The core index was up 3 percent in April from a year earlier, the biggest gain since December 1991.

Rising costs for metals, chemicals and fuel propelled the increases in raw materials, the report showed. The price of steel-mill products jumped 5.5 percent in April and agricultural chemicals surged 5.6 percent. Further down the pipeline, prices for scrap steel and iron soared 32 percent, the most since July 2004, and scrap copper costs jumped 5.3 percent.

So far this year, wholesale costs are up 8.5 percent at an annual pace compared with 8.4 percent for the same time last year. The core rate has increased at a 5.2 percent annual pace, compared with 2.1 percent in the first four months of 2007. .....(more)

The complete piece is at: http://www.bloomberg.com/apps/news?pid=20601087&sid=aNip2xfwTuT8&refer=home