US producer prices rise slightly on weak hotel costs

WASHINGTON: US producer prices barely rose in April after strong gains in the first quarter, held back by a moderation in the cost of services such as hotel accommodation and healthcare, which could ease fears that inflation pressures were rapidly building up.

The slowdown in wholesale price growth reported by the Labor Department on Wednesday is, however, likely temporary as manufacturers have been reporting paying more for raw materials.

Economists also expect oil prices to surge after President Donald Trump on Tuesday pulled the United States out of an international nuclear deal with Iran.

“Inflation isn’t breaking out, although with Trump exiting the Iran nuclear deal, higher energy prices could kick-start a new round of inflation at the producer level,” said Chris Rupkey, chief economist at MUFG in New York.

The Labor Department said on Wednesday its producer price index for final demand edged up 0.1 per cent last month after increasing 0.3 per cent in March.

That lowered the year-on-year increase in the PPI to 2.6 per cent from 3.0 per cent in March.

Economists polled by Reuters had forecast the PPI gaining 0.2 per cent last month and rising 2.8 per cent from a year ago.

A key gauge of underlying producer price pressures that excludes food, energy and trade services also nudged up 0.1 per cent last month. The so-called core PPI had increased by 0.4 per cent in each of the past three months.

In the 12 months through April, the core PPI rose 2.5 per cent after jumping 2.9 per cent in March.

Core goods prices increased 0.3 per cent in April, matching March’s gain. Prices for intermediate processed goods increased 0.5 per cent while the cost of unprocessed goods shot up 0.9 per cent.

“There is building pressure in the pipeline,” said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania.

Stocks on Wall Street were trading higher, with shares of energy companies getting a boost from surging oil prices after the United States exited the Iran nuclear deal and imposed the ‘highest level’ of sanctions against the OPEC member.

Crude prices rose to 3-1/2-year highs. US Treasury yields rose while the dollar was little changed against a basket of currencies.

Inflation is flirting with the Federal Reserve’s 2 per cent target. The US central bank’s preferred inflation measure, the personal consumption expenditures (PCE) price index excluding food and energy, increased 1.9 per cent yearon-year in March and is expected to breach its target in the coming months.

This comes as last year’s big declines in prices of cell phone service plans drop out of the calculation.

Fed officials have in recent days signaled they would not be too concerned if inflation overshot the central bank’s target, reiterating a message in a statement issued at the end of a two-day policy meeting last Wednesday.

In that statement, policymakers said they expected annual inflation to run close to the ‘symmetric’ 2 per cent target over the medium term. The US central bank left interest rates unchanged last week.

The Fed hiked rates in March and has forecast at least two more increases for this year.

In April, the price of services ticked up 0.1 per cent. That followed two straight monthly increases of 0.3 per cent.

Services were restrained by a 3.2 per cent drop in the cost of hotel accommodation, which was the biggest decline since September 2009.

The cost of healthcare services fell 0.2 per cent after increasing 0.3 per cent in March. Those costs feed into the core PCE price index.

Prices for goods were unchanged last month after rising 0.3 per cent in March. Wholesale food prices declined 1.1 per cent last month, the largest drop since August 2016, after surging 2.2 per cent in March.

Food prices were weighed down by sharp declines in the cost of vegetables, eggs and unprocessed finfish.

Gasoline prices fell 0.4 per cent in April after dropping 3.7 per cent in the prior month.

In a separate report on Wednesday, the Commerce Department said wholesale inventories increased less than initially estimated in March amid declines in the stocks of motor vehicles and a range of other goods.