First increase in three months spurred by higher cost of gas, eggs
By Jeffry Bartash, MarketWatch
WASHINGTON (MarketWatch) — U.S. wholesale prices rose in May for the first time in three months, nudged up by higher costs for gasoline, fresh eggs and light trucks.
The producer price index climbed a seasonally adjusted 0.5% last month, the Labor Department said Friday. That was sharply higher than the 0.1% increase expected by economists polled by MarketWatch.
The spike follows declines of 0.7% in April and 0.6% in March that were largely the product of falling gasoline prices. Gas prices rose in May, however, to push overall energy costs 1.3% higher.
The data didn’t do much to markets, though Treasurys pared gains after the data. Bonds become less valuable when inflation picks up. See Indications.
Food costs, meanwhile, rose 0.6% last month and have been particularly volatile. Over the past six months they have alternated between increases and decreases.
In May, a record 41.6% jump in the price of eggs for fresh use accounted for most of the increase in food costs. Prices also rose for cheese and fresh fruits.
Excluding food and energy, core wholesale prices rose a much smaller 0.1%. The core rate is viewed by the Fed as a more useful gauge of underlying inflationary trends.
Light trucks posted the biggest advance, with prices up 0.4%. Yet car prices fell 0.5% as auto companies offered better financial terms to dealers to boost sales.
On the whole, producer prices remain relatively tame. Costs have risen a mild 1.7% over the past 12 months on both an overall and core basis.
The low rate of inflation reflects softness in the global economy and, more recently, lower energy prices compared to earlier in the year.
Subdued price pressures give the Federal Reserve more cushion to maintain its low-interest rate policy, a strategy based on the purchase of billions of dollars in Treasury and mortgage bonds.
Low inflation also gives consumers more purchasing power, something they need given slow wage growth since the end of the 2007-2009 recession.
The price index for intermediate goods, such as the cloth used to make clothes or stamped metal parts used in heavy machinery, dipped 0.1% last month.
Crude prices — the cost of raw materials — rose 2.2% in May..
A better measure of whether Americans are paying more for goods and services, the consumer price index, will be released Tuesday. Economists surveyed by MarketWatch project CPI rose slightly in May.
Jeffry Bartash is a reporter for MarketWatch in Washington.
