Producer Prices Increase By Much More Than Expected In January

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With energy prices showing a substantial increase, the Labor Department released a report on Thursday showing that producer prices increased by much more than anticipated in the month of January. Core prices also increased by more than expected.

The Labor Department said its producer price index increased by 1.4 percent in January following an unrevised 0.4 percent increase in December. Economists had been expecting a more modest increase of about 0.8 percent.

A surge in energy prices contributed to the bigger than expected increase in producer prices, with energy prices jumping by 5.1 percent in January after rising by 0.7 percent in December. The increase in energy prices was largely due to a 11.5 percent jump in gasoline prices.

With the notable monthly increase in producer prices, the annual rate of producer price inflation accelerated to 4.6 percent in January from 4.4 percent in December.

As mentioned above, the report also showed a bigger than expected increase in core producer prices, which exclude the jump in energy prices as well as a 0.4 percent increase in food prices.

The core producer price index rose by 0.3 percent in January after coming in unchanged in the previous month. The core index has been expected to edge up by 0.1 percent.

On an annual basis, core producer prices were up 1.0 percent year-over-year in January, a modest acceleration from the 0.9 percent annual rate of growth seen in December.

Despite the modest acceleration in the annual rate of core producer price growth, Paul Ashworth, Senior U.S. Economist at Capital Economics, noted that the rate was as high as 4.2 percent a year ago.

Ashworth said, "That big moderation in core PPI inflation should have a marked impact on core consumer prices inflation this year, taking it down towards 1.0 percent."

Nonetheless, the bigger than expected increase in producer prices may raise some concerns about the outlook for inflation, especially after the Federal Reserve revealed on Wednesday that it has upwardly revised its expectations for core consumer price inflation in 2010.

The minutes of the latest Federal Open Market Committee meeting showed that the Fed now expects core consumer prices to increase by 1.1 to 1.7 percent in 2010 compared to the previous forecast for an increase of 1.0 to 1.5 percent.

Friday morning, the Labor Department will provide a more complete picture of the inflation environment with the release of its report on consumer prices in the month of January.

The report is currently expected to show that consumer prices increased by 0.3 percent in January after edging up by 0.1 percent in December. Core consumer prices are expected to edge up by 0.1 percent for the second consecutive month.

With energy prices showing a substantial increase, the Labor Department released a report on Thursday showing that producer prices increased by much more than anticipated in the month of January. Core prices also increased by more than expected. The Labor Department said its producer price index increased by 1.4 percent in January following an unrevised 0.4 percent increase in December. Economists had been expecting a more modest increase of about 0.8 percent. (Market News Provided by RTTNews)