Ahead of the Bell: Producer Price Index

AP News
Posted: Nov 17, 2009 6:19 AM

Wholesale prices likely rose last month as oil prices jumped, but the increase probably won't raise fears of inflation as other costs remain stable.

Rising unemployment, wary shoppers and tight credit have kept a lid on prices. That has enabled the Federal Reserve to keep the short-term interest rate it controls at its record low rate of nearly zero. Fed Chairman Ben Bernanke said Monday that inflation probably will remain "subdued for some time."

The Labor Department's Producer Price Index is expected to increase 0.5 percent in October, according to economists surveyed by Thomson Reuters. The index fell 0.6 percent in September.

Excluding volatile food and energy prices, the so-called "core" index is forecast to rise only 0.1 percent, after dipping by the same amount in September.

The department is scheduled to release the report Tuesday at 8:30 a.m. EST. The PPI tracks the prices of goods before they reach store shelves and is considered an early read of price trends.

Wholesale prices have been on a roller-coaster in recent months, reflecting wide swings in energy costs. The monthly index jumped 1.7 percent in August after falling 0.9 percent in July.

Oil prices rose as high as $81 per barrel in October before finishing the month at about $77, up from about $70 in September.

Over the past 12 months, economists expect that wholesale prices fell 1.8 percent, much smaller than the 4.8 percent drop in September. The PPI fell sharply this summer as oil prices have come down from last year's record-highs of $147 a barrel.

The index fell 6.8 percent in the 12 months ending in July, the largest decline on records dating to 1947.

Stripping out food and energy, the core wholesale inflation rate is expected to rise 1.4 percent in the 12 months ending October, down from a 1.8 percent increase in September.

The expectation of low inflation gives the Fed leeway to hold rates low for an "extended period," Bernanke said Monday, repeating a pledge made at the central bank's meeting earlier this month.

Economists expect the Fed will hold rates near zero at its next meeting on Dec. 15-16 and into part of next year to help the recovery gain traction.