The producer price index, which measures changes in the prices of goods and services that companies buy, increased 0.6% in April, the Labor Department said Wednesday.
Although inflation remains low, wholesale prices last month were up 2.1% on an annual basis. That's the biggest 12-month increase in more than two years and close to the Federal Reserve's 2% annual inflation rate target.
"Inflation is back and this can only mean one thing. Slack in the economy is evaporating more quickly now as the economy gets closer to full employment," said economist Chris Rupkey, of Bank of Tokyo-Mitsubishi in an email to clients. "Bet on it. Inflation isn't dead. We found some in today's PPI report."
Economists had expected Wednesday's report to show a 0.2% increase from March, according to Action Economics survey's median forecast. Wholesale prices rose 0.5% in March and fell 0.1% in February.
Higher profit margins for wholesalers and retailers were behind two-thirds of last month's jump in prices. Margins shrank during the winter due to heavy discounting.
An 8.4% increase in meat prices in April accounted for more than a third of the jump in producer prices, the Labor Department said.
Drought, unusually cold winter weather, a shrunken cattle herd and a virus in the hog population have all contributed to higher wholesale food prices in recent months, which have been flowing through to consumers. Prices for processed poultry and eggs have also risen.
But increases in food prices this year follow declines in much of 2013.
Other contributors to higher wholesale prices last month were gasoline, light trucks, residential electric power, processed poultry and dairy products. Prices fell for residential natural gas, passenger cars and soft drinks.
Energy prices rose just 0.1% last month. Excluding food and energy costs, which can be volatile, so-called core pric! es increased 0.3% in April.
Core goods prices — excluding food, energy and services costs — have risen 0.3% or more in three of the past five months, Rupkey notes.
What this trend means for consumer prices remains to be seen. Consumer prices in March were up 0.2% from February and 1.5% year over year.
April's consumer price index comes out Thursday. The median forecast in Action Economics' survey is for a 0.3% increase.
Whether the prices rise or down, as long as we don't experience crisis, that's the most important thing to look for.
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