BLBG: Producer Prices in U.S. Fall More Than Forecast on Fuel
Wholesale prices in the U.S. fell in June more than forecast, pulled down by lower energy and food costs, a sign the economy is recovering without inflation.
The 0.5 percent decline in prices paid to factories, farmers and other producers compared with a 0.1 percent drop median projection of economists surveyed by Bloomberg News and followed a 0.3 percent decline in May, figures from the Labor Department showed today in Washington. Excluding food and fuel, so-called core prices climbed 0.1 percent, matching the median estimate.
Concerns about growth in Europe are prompting economists and policy makers to trim inflation forecasts on increased prospects for weaker global growth and a stronger U.S. dollar. Companies have little ability to raise prices with about 25 percent of plant space unused and unemployment at 9.5 percent, leaving the Federal Reserve scope to hold its benchmark interest rate near zero in coming months.
“Commodity prices have been slipping amid concerns about slower global growth and a stronger dollar,” Aaron Smith, a senior economist at Moody’s Economy.com in West Chester, Pennsylvania, said before the report. “High unemployment will likely keep wage pressures at bay and continue to restrain pricing power in the second half of the year.”
A separate report from the Labor Department today showed fewer Americans than projected filed applications for unemployment benefits last week, reflecting a smaller number of factory closings for this time of year.
Fewer Claims
Initial jobless claims dropped by 29,000 to 429,000 in the week ended July 10, the fewest since August 2008. The government anticipates an increase in temporary factory layoffs in early July that did not occur this year, leading to the decrease in applications, a Labor Department spokesman said.
The median forecast for producer prices was based on estimates of 73 economists in a Bloomberg News survey. Projections ranged from a drop of 0.8 percent to a 0.3 percent increase.
Compared with a year earlier, companies paid 2.8 percent more for goods in June after rising 5.3 percent in the 12 months ended in May.
Excluding food and energy, wholesale prices rose 1.1 percent in the 12 months ended in June after a 1.3 percent year- over-year increase a month earlier.
The cost of food decreased 2.2 percent in June, the biggest drop since April 2002, as the cost of fruits and vegetables declined. Energy prices fell 0.5 percent last month on cheaper heating oil and diesel fuel.
Stronger Dollar
The European debt crisis may limit the cost of imported goods by pushing up the value of the dollar against the euro, making goods from the European Union cheaper.
Producer prices are one of three monthly inflation gauges reported by the Labor Department. Figures yesterday showed prices of goods imported into the U.S. fell 1.3 percent in June after a 0.5 percent decline a month earlier.
The government is scheduled to release its consumer price index tomorrow. The median estimate of economists surveyed calls for a 0.1 percent decrease compared with May.
Fed officials last month were concerned about lingering high unemployment and risks that inflation could decelerate further, minutes of their June meeting showed. If the outlook worsened, the committee would need to consider whether additional stimulus was appropriate, according to minutes released yesterday in Washington.
Broad-based Declines
Prices of intermediate goods fell 0.9 percent in June and were up 6.4 percent compared with a year earlier, today’s report showed. Prices of crude goods dropped 2.4 percent last month and were up 13 percent from a year ago.
The cost of steel mill products decreased 1.3 percent last month. Dan DiMicco, chief executive officer of Nucor Corp., is among company leaders projecting the economic recovery will be slow to develop. The largest U.S. steelmaker last month forecast second-quarter earnings that trailed analysts estimates amid weak demand from the construction industry.
“The economy is going to be struggling along here for a little bit in the third quarter,” DiMicco said in a June 23 interview. He said the U.S. faces “a long road back” unless government works with the private sector to reduce unemployment.
Some commodity prices are translating into higher sales for American companies. Alcoa Inc., the largest U.S. aluminum producer, this week reported second-quarter profit that topped analysts’ projections as higher metal prices boosted revenue.
To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net
