Higher Energy & Food Costs Lift Wholesale Prices

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WASHINGTON (AP) — Wholesale prices in December posted their biggest increase in nearly a year, lifted by more expensive energy and food costs. But most other prices were largely well behaved, suggesting inflation isn't spreading through the economy.

The Producer Price Index, which measures price changes before they reach consumers, rose 1.1 percent in December, the Labor Department reported Thursday. That was up from a 0.8 percent rise in November and was the largest increase since January 2010.

But outside the volatile energy and food categories, all other prices rose just 0.2 percent, down from a 0.3 percent rise in November. That lower reading on "core" prices indicates that inflation isn't breaking out. In fact, most of the increase in core prices last month was due to a 2.9 percent increase in cigarette prices.

Federal Reserve Chairman Ben Bernanke predicts inflation won't be a problem for the economy this year.

Companies are still operating below full capacity and are under competitive pressure to keep a check on prices. Hiring is improving only gradually, meaning workers have little leverage to demand big pay raises.

In fact, Bernanke and other Fed officials for most of last year were worried that the weak economy could push the country into a period of deflation. That's a prolonged drop in prices, wages and values of homes and stocks. It's damaging to the economy and to the financial well-being of individuals and businesses.

For the 12 months ending December, wholesale prices rose 4 percent. That was down from a 4.3 percent rise in 2009. Meanwhile, "core" prices rose 1.3 percent last year, up from a 0.9 percent increase in 2009.

About three-fourths of the increase in wholesale prices last month was due to higher energy costs. Energy prices rose 3.7 percent. Home heating oil prices jumped 12.3 percent and gasoline prices rose 6.4 percent.

A sharp rise in gasoline prices, which now top $3 a gallon, could cause people to cut spending on other things, slowing the economy.

Food prices rose sharply, too. They increased 0.8 percent in December, following a 1 percent rise in November. The increase reflected higher prices for vegetables and fruits.

The U.S. Agriculture Department reported Wednesday that grain prices surged to their highest level in 2 1/2 years. Prices rose as corn and soybean production fell.

A Fed survey of business conditions around the country also released Wednesday found that companies are paying more for materials including oil, food products, steel, textile and chemicals. But competitive pressures prevented them from passing those increased costs on to customers in the form of higher prices.

Copyright 2011 The Associated Press.



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