Ahead of the Bell: Wholesale prices

AP News
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Posted: Mar 15, 2012 3:49 AM
Ahead of the Bell: Wholesale prices

Rising oil and gas costs likely drove wholesale prices higher last month. But excluding those volatile costs, inflation is expected to remain tame.

Economists forecast that the producer price index moved up 0.5 percent in February, according to a survey by FactSet. The index measures price changes before they reach the consumer. The "core" index, which excludes food and energy prices, is expected to have risen 0.2 percent.

The report will be issued by the Labor Department at 8:30 a.m. Eastern time Thursday.

Modest wholesale inflation reduces pressure on manufacturers and retailers to raise prices. That helps keep consumer prices stable. Low inflation also allows the Federal Reserve to keep short-term interest rates near zero.

In January, wholesale prices barely changed. While wholesale gas prices rose, the increase was offset by steep drops in home heating oil, natural gas and electricity, which fell by the most in more than seven years.

But oil and gas prices have surged further since then. The average price for a gallon of gas was $3.81 on Wednesday, according to AAA. That's 50 cents higher than a month ago.

The Fed noted the increase Tuesday after its one-day policy meeting. Policymakers said they expect rising energy prices to temporarily raise inflation but longer-term inflation should remain stable _ repeating a view expressed by Chairman Ben Bernanke earlier this month.

The Fed also repeated its plan to keep its benchmark interest rate near zero until at least 2014, a sign that it is not concerned about out-of-control inflation.

In the past 12 months, wholesale prices have increased 4.1 percent _ the smallest rise in a year.

Wholesale inflation peaked last year and has moderated steadily in recent months. Prices of many agricultural commodities, such as cotton and corn, spiked early last year but have since fallen.

A small amount of inflation can be good for the economy. It encourages businesses and consumers to spend and invest money sooner rather than later, before inflation erodes its value.

Lower price growth also leaves more money in consumers' pockets, boosting their buying power and supporting economic growth. The jump in gas and food prices early last year limited Americans' ability to buy other goods, slowing the economy.

Some economists worry that rising gas prices could act in a similar way again, dragging on growth. If turmoil worsens in the Middle East, for example, that could push oil and gas prices much higher.