In­fla­tion fears low de­spite whole­sale price jump

The Middletown Press (Middletown, CT) - - BUSINESS -

Led by costlier gas, food, and chem­i­cals, U.S. whole­sale prices surged 0.6 per­cent in Oc­to­ber, the big­gest month-to-month rise in six years. Yet ex­clud­ing items that tend to fluc­tu­ate sharply from month to month, in­fla­tion pres­sures re­main tame.

The jump in the pro­ducer price in­dex, which mea­sures prices be­fore they reach con­sumers, fol­lowed a smaller 0.2 per­cent in­crease in Septem­ber. Com­pared with 12 months ear­lier, pro­ducer prices rose a sharp 2.9 per­cent in Oc­to­ber.

But when food, en­ergy and other volatile cat­e­gories are ex­cluded, so-called core whole­sale prices rose only a mod­est 0.2 per­cent in Oc­to­ber and 2.8 per­cent from a year ear­lier.

Higher prices for ser­vices such as trans­porta­tion and ware­hous­ing drove most of Oc­to­ber’s over­all in­crease in whole­sale prices. Many truck­ing com­pa­nies have had to pay bonuses and raise pay to hire enough truck driv­ers, for ex­am­ple.

And the year-over-year in­crease in whole­sale prices is still lower than it was in the sum­mer, when it topped 3 per­cent. In ad­di­tion, oil prices de­clined in Oc­to­ber, which will likely lower ga­so­line costs in the com­ing months.

“There is lit­tle sign that a more marked ac­cel­er­a­tion (in in­fla­tion) lies around the cor­ner,” An­drew Hunter, U.S. econ­o­mist at Cap­i­tal Eco­nom­ics, a fore­cast­ing firm, said in a re­search note.

Economists say the Trump ad­min­is­tra­tion’s trade war with China, which has led it to im­pose tar­iffs on $250 bil­lion of Chi­nese im­ports, has so far had only a lim­ited im­pact. Hunter sug­gested that the dol­lar’s rise in value this year, which makes im­ports less ex­pen­sive for Amer­i­cans, might be off­set­ting much of the im­pact of the tar­iffs.

Whole­sale prices for pork rose by the most in more than two years last month. But Stephen Stan­ley, chief econ­o­mist at Amherst Pier­pont, said that likely marked a snap­back af­ter China im­posed re­tal­ia­tory tar­iffs on U.S. pork ear­lier this year. Those tar­iffs ini­tially de­pressed China’s pur­chases and forced pork farm­ers to lower their prices. That trend now ap­pears to be re­vers­ing it­self, Stan­ley said.

The Fed­eral Re­serve is keep­ing a close eye on price changes as it mon­i­tors the econ­omy for signs of over­heat­ing. The un­em­ploy­ment rate is at a five-decade low of 3.7 per­cent, and com­pa­nies are rais­ing wages and salaries to at­tract and keep work­ers. Av­er­age hourly pay rose in Oc­to­ber from a year ear­lier at the fastest pace in nearly a decade.

Com­pa­nies may have to raise prices to off­set the costs of higher pay, which could spur higher in­fla­tion. But busi­nesses could also in­vest in more ma­chin­ery and soft­ware to make their em­ploy­ees more ef­fi­cient, which would en­able them to pay more with­out rais­ing prices.

As­so­ci­ated Press

Shop­pers wait in the check­out line at Costco in Moun­tain View, Calif. Higher prices for ser­vices such as trans­porta­tion and ware­hous­ing drove most of Oc­to­ber’s over­all in­crease in whole­sale prices.

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