Wholesale price rise slackens in November

0.5% increase follows October's 1.7% gain

December 11, 2004|By BLOOMBERG NEWS

U.S. wholesale prices rose 0.5 percent in November, reflecting the biggest increase in natural gas costs since March 2003. But consumer confidence rose, in part because few of the price increases are hitting shoppers.

The increase in prices paid to factories, farmers and other producers followed a 1.7 percent gain in October, the biggest rise in 14 years, the Labor Department said yesterday.

The core rate, which excludes food and energy, gained 0.2 percent. The University of Michigan's preliminary consumer sentiment index rose to 95.7 from 92.8 in November.

Higher materials prices so far have been more of a strain on corporations than consumers. Delphi Corp., the world's biggest auto-parts supplier, partly blamed rising costs yesterday for 8,500 job cuts planned for next year.

"We are seeing a rise in raw materials costs and commodities, but companies haven't been able to pass these through to consumers," said Mark Vitner, senior economist at Wachovia Corp. in Charlotte, N.C. "That's a threat to profit margins, and as a result companies are having to cut costs."

The increase in November's core rate was the smallest since a 0.2 percent drop in July. So far this year, producer prices are rising at a 5.3 percent annual rate, compared with a 4.1 percent increase in the first 11 months of last year. Core prices are up at a 2.2 percent annual pace, compared with 1.2 percent in 2003.

The price of crude oil has risen by more than a third in a year. Steel prices also are up, spurred by demand in the United States and China. Natural gas increased 6.2 percent last month and electricity costs also rose, yesterday's report said.

"For the last four years, the battle at companies has been to hold down costs, and the increase in energy prices this year just makes that more difficult," said William T. Zadrozny, chief executive officer of Siemens Financial Services, the lending unit of Siemens AG.

Even so, crude oil prices dropped more than 20 percent since rising to over $55 a barrel in October, helping lower the price of gasoline and leaving consumers with more money to spend as they enter the holiday shopping season.

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