The Economy

Food, Gas Keep Producer Prices Unchanged

While there may be some firming in core pipeline pressures, "the headwinds from energy and food prices remain in place," an economist says.
Matthew HellerSeptember 16, 2016

Prices paid by U.S. businesses for goods and services were unchanged in August as food and gas prices continue to keep inflation on the low side.

The unchanged reading in the Labor Department’s producer price index was up from July’s decline of 0.2%. Economists surveyed by The Wall Street Journal had forecast a 0.1% increase.

In August, the wholesale cost of food tumbled 1.6%, the biggest drop in almost three-and-a-half years. Gasoline prices slid 2.5%.

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Excluding food and energy, prices rose 0.1% last month and, excluding food, energy and trade services, so-called core prices were up 1.2% on the year — the largest annual gain since December 2014 but still well short of the Federal Reserve’s 2% inflation target.

The August report “suggests some continued firming in core pipeline pressures, but the headwinds from energy and food prices remain in place,” Barclays economist Blerina Uruçi said in a note to clients. “As the drag from these volatile components wanes, we expect PPI gradually to pick up and to feed through to a firming in consumer prices.”

As the WSJ reports, “The outlook for U.S. inflation is a key consideration for the Federal Reserve as officials prepare for next week’s policy meeting.” In July, the Fed said inflation was “expected to remain low in the near term, in part because of earlier declines in energy prices, but to rise to 2% over the medium term as the transitory effects of past declines in energy and import prices dissipate and the labor market strengthens further.”

Some policy makers have said they want to see more evidence that inflation is on the rise before raising interest rates again.

”The inflation data overall have not been suggesting disinflation or deflation, but the flat trend line is enough below target that, in my opinion, the shortfall cannot be considered immaterial,” Federal Reserve Bank of Atlanta President Dennis Lockhart said Monday. “I find this to be an awkward state of affairs.”

Producer prices for goods fell 0.4% in August, the same as in July, while prices for services edged up 0.1%, following a 0.3% drop the previous month.