Rising Business Prices Point to Trend in Firming Inflation -- Update

Date : 13/06/2018 @ 16:16
Source : Dow Jones News

Rising Business Prices Point to Trend in Firming Inflation -- Update

By Sarah Chaney 

WASHINGTON -- A gauge of U.S. business prices rose in May, the latest sign that inflation pressures in the economy are firming as the U.S. faces increasing tariff threats and a tightening labor market.

The producer-price index, a measure of the prices businesses receive for their goods and services, rose a seasonally adjusted 0.5% in May from a month earlier, the Labor Department said Wednesday.

Energy-price increases helped drive the overall increase in business prices. Still, prices rose for a broader range of goods and services.

Wednesday's producer-price data come on the back of strong consumer-price figures released Tuesday.

These data point to a firming inflationary trend, driven by higher energy prices, increased threats and the imposition of tariffs, and reduced labor market slack, said Gregory Daco, chief U.S. economist at Oxford Economics.

"That in turn means that inflation is going to firm and continue to firm towards the Fed's target," Mr. Daco said.

When excluding the often-volatile food and energy categories, prices were up 0.3% in May from the prior month. Prices excluding food, energy and a volatile gauge of margins called trade services increased 0.1% last month.

Transportation prices rose 0.7%, in line with a r ecent Institute for Supply Management report, in which businesses reported rising transportation costs. Mr. Daco said higher labor costs in the trucking industry, combined with rising energy costs, are pushing up prices for producers.

"You have to add into the third dimension, which is the fact that you're seeing threats of tariffs and implementation of some tariffs putting upward pressure on the costs of some of the transported goods," Mr. Daco said.

The producer-price index has shown strength over the past year. As recently as January 2017, the annual price growth clocked in under 2%.

From a year earlier, overall prices increased 3.1% in May, the largest annual increase since prices also moved up 3.1% in January 2012.

In the longer term, annual gains in the headline index have risen since the beginning of 2016. Rising oil prices and improved global demand have helped push the index higher.

The producer-prices measure usually follows the same trends as other broad inflation gauges, though it doesn't always translate into what consumers pay. Signs of building inflation pressures have emerged within other recent reports.

The consumer-price index rose 2.8% last month from the prior year, the strongest annual reading since February 2012, when inflation was 2.9%, the Labor Department said Tuesday.

Ramped-up inflation could cause the Federal Reserve to pick up the pace of interest rate increases this year. Fed officials are widely expected to raise their benchmark interest rate Wednesday, when they will also signal rate plans for the rest of the year.

The Fed's preferred inflation measure, the Commerce Department's personal-consumption expenditures index, rose 2% in April from a year earlier, matching the central bank's annual inflation target for the second straight month.

Write to Sarah Chaney at sarah.chaney@wsj.com

 

(END) Dow Jones Newswires

June 13, 2018 11:01 ET (15:01 GMT)

Copyright (c) 2018 Dow Jones & Company, Inc.
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