July producer prices jump on energy costs

WASHINGTON (Reuters) – U.S. producer prices rose twice as
fast as expected last month on soaring energy costs, government
data showed on Wednesday, while prices excluding food and
energy also topped forecasts in a sign of building inflation
pressures.

The Labor Department said the July producer price index
rose 1.0 percent. Prices for finished energy goods jumped 4.4
percent, the biggest rise since October 2004, while finished
consumer food prices fell 0.3 percent.

Excluding those volatile areas, so-called core producer
prices climbed 0.4 percent.

Wall Street economists had expected overall producer prices
to rise 0.5 percent, with core prices up 0.1 percent.

The PPI index, a gauge of prices received by farms,
factories and refineries, followed a steady reading in June.
Over the past 12 months, producer prices have climbed 4.6
percent overall and 2.8 percent stripping out food and energy.

This was the fastest rise in core prices since a matching
2.8 percent increase over the 12 months ending November 1995.

Bond prices sank on the news and stock futures softened
while the dollar strengthened on expectations the Federal
Reserve would keep up its steady campaign of rate rises.

“This should keep investors and policy-makers on alert with
a recovering economy and a growth profiling stronger in the
third quarter than the second quarter,” said Anthony Chan,
senior economist at JP Morgan Asset Management.

“We are seeing some pricing pressure on the wholesale
level, but the (consumer price index) report yesterday showed
that it hasn’t really passed on to the consumer level,” he
added.

The department said on Tuesday that June consumer prices
rose 0.5 percent but were up a much milder 0.1 percent
excluding food and energy costs. Oil prices have spiked to
record levels, averaging $12 more a barrel for the full year
than in 2004.

The producer price report showed a 1.5 percent increase in
car prices and a 1.4 percent rise in prices for light trucks
and SUVs. Stripping out car and light truck prices, core PPI
rose just 0.2 percent last month.

But further back in the production pipeline, intermediate
goods prices climbed a steep 1.0 percent, while prices for
crude goods jumped 6.7 percent.