Lower energy costs weigh on US producer prices

14 Oct 2015 | Author: | No comments yet »

Producer prices fall again, inflation quiet.

Sinking energy costs pushed US producer prices 0.5 percent lower in September, another sign of deflationary pressures in the economy, Labor Department data showed Wednesday. The Labor Department said Wednesday that the producer price index, which measures price changes before they reach the consumer, dropped 0.5% last month after being unchanged in August.The 0.5 percent decrease in the producer-price index was the biggest since January and followed no change in August, Labor Department figures showed Wednesday. However, core prices for goods and services — those excluding food, energy and trade — were down 0.3 percent in the month and up just 0.5 percent over 12 months, a very weak showing, said economists.

That poses a challenge for Federal Reserve policy makers, who are looking for signs that inflation will move back toward their 2 percent target as they consider raising borrowing costs for the first time since 2006. “The inflation backdrop remains very benign,” said Thomas Costerg, a senior U.S. economist at Standard Chartered Bank in New York, who correctly forecast the decline in wholesale prices. “There are worries that inflation may not pick up that much in 2016, and this report goes that way.” Another report on Wednesday showed tepid consumer spending in September. Combined with a weak retail sales report for September — up just 0.1 percent — the numbers “confirm that the economy is stuck and deflation pressures are the key risk,” said Steven Ricchiuto of Mizuho Securities. Over the past year overall producer prices have fallen an unadjusted 1.1%, and the year-over-year increase has been negative for eight straight months.

Those inflation figures are far from the Fed’s 2% inflation target, a gap that could cause Fed policymakers to delay a rate hike at their Oct. 27-28 meeting. The short-term rate it controls has been pegged at a record low near zero since late 2008, in an effort to spur borrowing and spending amid the Great Recession and ensuing recovery now entering its seventh year. Fed officials delayed raising rates in September amid global growth concerns and financial market volatility, while adding that inflation continues to run below their longer-run objective.

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