Higher Energy Prices Push Wholesale Prices Higher
Washington (AP) - More expensive gas pushed wholesale prices higher last month, although pricier cars and furniture also contributed to increase.
The Producer Price Index, which measures price changes before they reach the consumer, rose 0.7 percent in March, the Labor Department said Thursday. That's down from 1.6 percent in February. The index has increased 5.8 percent in the past year.
Excluding volatile food and energy costs, prices rose 0.3 percent -- the second-highest increase in the past year. The price of new cars rose by the most in nearly two years, while the cost of some types of furniture jumped 6.5 percent. Still, core prices are only up 1.9 percent over the past year, a relatively tame rate of inflation.
Food prices dipped last month, after soaring by the most in 36 years in February because of a harsh winter freeze that raised the cost of fresh vegetables. Egg prices dropped 20 percent.
The bulk of the increase in wholesale costs was driven by energy prices. Gas prices jumped 5.7 percent in March. The national average for a gallon passed $3.81 on Thursday and is $0.25 more expensive than a month ago, according to AAA.
Economists say rising oil and gas prices could slow the economy, leaving consumers with less money to spend on other goods. But average hourly pay has only risen 1.7 percent in the past year, a fact that is likely to keep inflation from spreading.
Employers have little incentive to raise pay when the unemployment rate is high. But businesses are also unlikely to raise prices by much if they sense people can't afford to pay the added costs.
Federal Reserve Chairman Ben Bernanke and other Fed officials believe that the surge in oil and gas prices will lead to only a temporary increase in inflation. But for inflation to take off, workers typically have to receive higher wages, which hasn't happened.
A minority of Fed officials have raised concerns about inflation in recent weeks, arguing that the central bank should consider raising interest rates from their record-low levels of nearly zero. Fed policymakers are expected to debate the issue at their next meeting on April 26-27.
"There is little reason to believe that this report will alter the Fed's stance that it can ignore the commodity price spike," said Paul Ashworth, chief U.S. economist at Capital Economics, in a note to clients.