Producer price index unchanged last month

But gain of 3.6% for entire year is largest since 1990

Producer price index is unchanged

January 13, 2001|By BLOOMBERG NEWS

WASHINGTON - Prices paid to U.S. factories, farmers and other producers showed little change in December as declines for food, gasoline and oil outweighed soaring costs for electricity and natural gas. Gains earlier in 2000 made the annual increase the largest in a decade.

The producer price index didn't move last month after rising 0.1 percent in November, the Labor Department said yesterday. It was the tamest reading since the index fell 0.4 percent in August. For all of last year, the index rose 3.6 percent, the largest increase since oil prices sent it up 5.7 percent in 1990.

Prices excluding food and energy rose 0.3 percent in December, the largest increase since May, after showing no change the previous month. Higher wholesale prices for cars and light trucks pushed up that core index last month, but analysts expect a cooling economy to limit consumer price increases.

"Underlying inflation remains benign," said Peter E. Kretzmer, senior economist at Banc of America Securities in New York. An "environment of weaker vehicle sales" means the increases for cars and trucks "are unlikely to be sustained."

Increased spending on automobiles helped push retail sales up 0.1 percent last month after a 0.5 percent decline a month earlier, the Commerce Department reported separately. Even so, October-December spending fell at a 2 percent annual rate, the weakest performance since a 2.9 percent rate of decline in the final three months of 1990.

The producer price index rose 2.9 percent in 1999. The core index rose 1.2 percent last year, compared with 0.9 percent in 1999.

Analysts had expected last month's rises of 0.1 percent in the producer price index and the core.

Energy prices fell 0.7 percent last month after rising 0.4 percent in November, the Labor Department reported. Gasoline fell 8.4 percent, and heating oil fell 1.2 percent.

Natural gas for home heating rose 6.9 percent, the biggest increase on record. Residential electric power increased 1.2 percent, the biggest rise since a gain of 1.9 percent in November 1994. The last two months of last year were the coldest November-December on record in the nation, boosting energy demand.

Energy prices rose 17.1 percent last year after an 18.1 percent increase in 1999.

The Federal Reserve's efforts to curb inflation through six interest rate increases from mid-1999 to mid-2000 have slowed spending, easing the pressure on prices for all goods. The Fed cut the overnight bank lending rate target by half a percentage point last week, to 6 percent, because "inflation pressures remain contained." The Fed also cautioned in its statement that energy prices have been "sapping household and business purchasing power."

Higher energy costs have increased expenses for manufacturers, but not all are passing them along completely. Paper products maker Kimberly-Clark Corp. is charging more to hotels and offices without increasing the retail price. Martin Marietta Materials Inc., a supplier of sand, gravel and other construction materials, is lowering earnings as it absorbs costs.

Industrial natural gas prices soared 33.9 percent last month and were almost double those of a year earlier. Utilities were paying 23 percent more for natural gas last month and 91 percent more than they were a year earlier.

Wholesale auto prices rose 0.5 percent, the most since they rose 1.1 percent in September. Even so, prices were 0.6 percent lower than they had been a year earlier. Prices for light trucks, which include sport utility vehicles, increased 1.4 percent, the biggest rise since 1.6 percent in September, and were 1.5 percent higher than they had been the year before.

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