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US producer prices up 1.4% in May US producer prices up 1.4% in May
(about 1 hour later)
US producer prices jumped by more than expected in May amid soaring fuel and food prices which are threatening to accelerate the pace of inflation. US producer prices jumped by more than expected in May, pushed higher by the soaring fuel and food prices that are hurting economies acround the world.
Prices climbed by 1.4%, marking the biggest gain since November 2007, according to statistics from the US Labor Department. Prices climbed by 1.4% - the biggest gain since November 2007, according to US Labor Department statistics.
Analysts had forecast a rise in producer prices of about 1%. Further evidence of the strain on the US economy came from separate government numbers showing a 3.3% fall in new home construction during May.
Core producer prices - excluding fuel and food - increased by 0.2%, in line with analysts' forecasts. The housing market has slowed over the past year, weighing on economic growth.
Cost worries As a result, the US central bank, the Federal Reserve, now expects growth of between 0.3% and 1.2% this year, down from the 1.3% to 2% predicted in February.
Some analysts were upbeat about the figures, pointing out the core producer price had been expected. Yet despite expectations of slower growth, fears remain over higher consumer prices, especially with oil prices setting new record highs of almost $140 a barrel.
"PPI was as expected. Headline numbers are heavy, but that's just oil. Core numbers are staying fairly well controlled," said Jim Paulsen, chief investment officer at Wells Capital. You will see companies trying to [increase prices] in the coming months. If they are unsuccessful, they will probably have to eat the higher costs Keith Hembre, chief economist, FAF Advisers.
Oil pressures
The increase in producer prices surprised many analysts, who had forecast a rise of about 1%.
But stripping out fuel and food, core producer prices rose by 0.2%, in line with analysts' forecasts.
This gave some analysts reason to be upbeat.
"PPI was as expected," said Jim Paulsen, chief investment officer at Wells Capital.
"Headline numbers are heavy, but that's just oil. Core numbers are staying fairly well controlled,"
"I think we have a little bit of inflation but certainly not runaway inflation. The inflation story would fade quickly if oil pulls back below $120," he said."I think we have a little bit of inflation but certainly not runaway inflation. The inflation story would fade quickly if oil pulls back below $120," he said.
Others were less optimistic.
"We have very weak housing with no sign yet of a turnaround and meanwhile rising food and energy costs are boosting wholesale inflation," said Gary Thayer, economist, Wachovia Securities.
For this reason, many analysts consider that the Fed will keep interest rates at their current level of 2% when they meet next week.
Cost worries
The data showed that producer prices were now 7.2% higher than they were a year ago. This was the eighth consecutive month that prices had risen by more than 6% on an annual basis.The data showed that producer prices were now 7.2% higher than they were a year ago. This was the eighth consecutive month that prices had risen by more than 6% on an annual basis.
The new figures add to worries that producers will soon be forced to raise prices to limit the impact of spiralling fuel and food prices.The new figures add to worries that producers will soon be forced to raise prices to limit the impact of spiralling fuel and food prices.
Analysts said that firms could only pass on so much to the consumer before having a negative impact on company profits.Analysts said that firms could only pass on so much to the consumer before having a negative impact on company profits.
"You will see companies trying to [increase prices] in the coming months. If they are unsuccessful, they will probably have to eat the higher costs," said Keith Hembre, chief economist at FAF Advisers."You will see companies trying to [increase prices] in the coming months. If they are unsuccessful, they will probably have to eat the higher costs," said Keith Hembre, chief economist at FAF Advisers.