US wholesale inflation remains tame in August Household income finally topped 1999 peak last year
A jump in fuel prices helped nudge US wholesale inflation in August to its biggest gain in four months, the Labor Department reported yesterday. But despite reversing the drop seen in July, the Producer Price Index still fell short of analyst expectations. Although the fuel price index spiked last month, it was not affected by Hurricane Harvey, since the information used to calculate the increase was collected before the storm hit. But the storm impact likely will be felt in September.
Harvey made landfall toward the end of the month on the Texas Gulf Coast, shutting down a large share of US production and refining capacity, which hit fuel and crude prices. “We are braced for a PPI spike in the next couple of months,” Ian Shepherdson of Pantheon Macroeconomics wrote in a client note. He noted that core PPI rose 0.5 percent in the immediate aftermath of Superstorm Sandy in 2012. Total PPI, which tracks the costs of wholesale goods and services, rose 0.2 percent for the month, the Labor Department said, falling short of the 0.3 percent rise analysts had been expecting. The increase followed a 0.1 percent drop in the prior month, and was the largest since a gain of 0.5 percent in April. Year-over-year, the index was 2.4 percent higher, up five tenths from July.
Most of the August PPI increase came from the goods segment, including energy, which jumped 3.3 percent. Excluding the volatile food and fuel categories, “core” PPI rose 0.1 percent, also below expectations, and was up 2.0 percent compared to August 2016.
Within energy, there were double-digit monthly increases in residual fuels, home heating oil, and jet fuel, which rose 18.6 percent, its fastest pace in eight years. And wholesale gasoline prices rose 9.5 percent for the month, the biggest increase since January. Analysts said the Fed was likely to view rising energy prices as a temporary phenomenon but reconstruction after back-to-back hurricanes in Texas and Florida was likely to drive up demand and prices for construction and other services. Persistent weak US inflation has stumped monetary policymakers and economists this year. The Federal Reserve is expected to leave its benchmark interest rate untouched when they meet next week, and the likelihood of a third rate hike this year has receded, especially in the aftermath of the hurricanes.
In contrast to energy, food prices dragged the monthly index down, with wholesale wheat prices tumbling 20.6 percent, the largest drop in more than nine years. Air transportation services rose 1.4 percent, the biggest increase since July 2009, while truck hauling services moved up 0.9 percent, the largest increase in three years.
In a stark reminder of the damage done by the Great Recession and of the modest recovery that followed, the median American household only last year finally earned more than it did in 1999. Incomes for a typical US household, adjusted for inflation, rose 3.2 percent from 2015 to 2016 to $59,039, the Census Bureau said. The median is the point at which half the households fall below and half are above. Last year’s figure is slightly above the previous peak of $58,665, reached in 1999. It is also the first time since the recession ended in 2009 that the typical household earned more than it did in 2007, when the recession began. Trudi Renwick, the bureau’s assistant division chief, cautioned that the census in 2013 changed how it asks households about income, making historical comparisons less than precise. Still, the Census data is closely watched because of its comprehensive nature. It is based on interviews with 70,000 households and includes detailed data on incomes and poverty across a range of demographic groups. Elise Gould, a senior economist at the Economic Policy Institute, said that adjusting for the change in methodology, median income still remains below its 1999 peak. Yet she added that the census report shows that American households have made significant economic progress in 2015 and 2016.
“We are definitely pulling ourselves out of the deep hole of the Great Recession,” Gould said on a conference call with reporters. Median household income rose $4,641, or 8.5 percent, from 2014 through 2016. That’s the best two-year gain on records dating to 1967, according to analysts at the Center on Budget and Policy Priorities. Yet that improvement comes after a steep recession and a slow recovery that left most American households with barely any income increases. The lack of meaningful raises has left many people feeling left behind economically, a sentiment that factored into the 2016 elections. The report also showed that income inequality worsened last year, extending a trend in place for roughly four decades. Average incomes among the wealthiest 5 percent climbed 5.5 percent to $375,088. Average incomes for the poorest one-fifth of households, meanwhile rose 2.5 percent to $12,943.
Other measures of Americans’ economic health improved. The poverty rate fell last year to 12.7 percent from 13.5 percent, Census said. The number of people living below the poverty line declined 2.5 million to 40.6 million. — Agencies
DIXON: Solar tech Joshua Valdez (left) and senior plant manager Tim Wisdom walk past solar panels at a Pacific Gas and Electric Solar Plant, in Dixon, Calif. Higher energy costs led to prices at the wholesale level rising in August 2017 at the fastest pace in four months, according to information released yesterday.—AP