U.S. producer prices recorded their largest increase in six months in December as the cost of gasoline rebounded strongly, but inflation pressures remained benign.
The Labor Department said on Wednesday its seasonally adjusted producer price index rose 0.4 per cent last month, the biggest rise since June, after slipping 0.1 per cent in November.
December’s rise in prices received by the nation’s farms, factories and refineries ended two straight months of declines and matched economists’ expectations.
In the 12 months through December, producer prices increased 1.2 per cent after advancing 0.7 per cent in November.
Wholesale prices excluding volatile food and energy costs increased 0.3 per cent, the biggest gain since July 2012, after ticking up 0.1 per cent the prior month. However, tobacco accounted for nearly half the increase.
In the 12 months through December, the so-called core PPI rose 1.4 per cent after increasing 1.3 per cent in November.
U.S. Treasury debt prices fell on the report, while U.S. stock index futures and the dollar were little changed.
A separate report showed manufacturing activity in New York state jumped to its highest level in 20 months in January as new orders soared.
The New York Federal Reserve’s “Empire State” general business conditions index rose to 12.51 in January from a revised 2.22 in December to hit its highest since May 2012. Economists polled by Reuters had expected a reading of 3.75.
New orders rose to 10.98, a two-year high according to the New York Fed, from a revised –1.6
While economic activity has picked up, inflation continues to run very low because of labor market slack.
That could see the Federal Reserve keeping interest rates near zero for a while. The U.S. central bank has started scaling back its monetary stimulus, reducing its monthly bond purchases to $75-billion from $85-billion starting this month.
“I think the Fed still thinks inflation is too low,” said Gus Faucher, senior economist with PNC Financial Services in Pittsburgh.
“That said (policymakers) will still reduce their asset purchases by $10-billion to $15-billion at the end of the month. We are see underlying growth at 3 per cent and that’s better than what we’ve had,” he added.
The Fed’s policymaking group meets on January 28-29.
Consumer inflation data Thursday is expected to show prices rising in December, according to a Reuters survey. Still, inflation remains below the Fed’s 2 per cent target.
Last month, wholesale gasoline prices rose 2.2 per cent, accounting for more than half of the increase in the energy index, which was up 1.6 per cent.
Wholesale food prices fell 0.6 per cent in December after being flat the prior month. Food prices were held down by the cost of pineapples, which recorded their biggest drop since May 2006. Pork prices also weighed, dropping by the most since September 2012.
Tobacco prices rose 3.6 per cent. Passenger car prices, which rose 0.2 per cent, and light truck prices, which advanced 0.5 per cent, also helped to lift the core PPI.