Ahead of the Bell: Producer prices

AP News
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Posted: Oct 14, 2010 6:53 AM
Ahead of the Bell: Producer prices

Wholesale prices likely rose in September for the third straight month but not by enough to spark fears of rampant inflation.

Economists forecast that the Producer Price Index, which measures price changes before they reach the consumer, rose by 0.2 percent in September, according to a survey by Thomson Reuters. That would follow a 0.4 percent rise in August.

Rising prices for corn, soybeans and other grains is expected to drive the increase. The Agriculture Department recently forecast that this year's grain harvests would come in lower than expected, driving up prices.

Energy prices, meanwhile, may have fallen, economists said, as natural gas costs have trended down in recent months.

Excluding volatile food and energy costs, the core wholesale price index is projected to tick up by 0.1 percent.

The weak economy is keeping a lid on prices, as frugal consumers seek out discounts and balk at higher costs. That has made it harder for producers to raise the prices they charge to retailers.

In addition, high unemployment is keeping paychecks low, so consumers can't afford to spend more.

Moderate price inflation allows the Federal Reserve to keep the short-term interest rate it controls at a record low of nearly zero, where it has been since December 2008.

Low inflation also makes it more likely the Fed will launch another effort to lower longer-term rates by purchasing Treasury bonds, a step known as "quantitative easing."

Fed policymakers signaled at their last meeting in September that they were nearing such a step. Most economists expect the central bank will announce the program at its Nov. 2-3 meeting.

Fed officials said last month that "inflation remained subdued," according to the minutes from the meeting, which were released earlier this week. At the same time, they saw "only small odds of deflation," which is a debilitating drop in prices, wages, and the values of homes and stocks.