Inflation pressure bubbles, home building dives

WASHINGTON Wed Mar 16, 2011 6:47pm EDT

A customer shops at a Sam's Club in Arkansas June 3, 2010. REUTERS/Sarah Conard

A customer shops at a Sam's Club in Arkansas June 3, 2010.

Credit: Reuters/Sarah Conard

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WASHINGTON (Reuters) - Producer prices surged in February at their fastest pace in 1-1/2 years, data showed on Wednesday, a day after the Federal Reserve said it had a watchful eye on inflation pressures it expects to subside.

In another reminder on Wednesday of headwinds facing the economy, the government said groundbreaking for new homes posted the biggest drop in 27 years in February and permits for future building reached a record low.

Economists said the jump in food and energy costs that drove the U.S. producer price index higher last month would likely steal from other spending and slow growth.

"I don't believe that this is a general rise in prices across the board, it's not the stuff of an inflationary spiral, but you are starting to have some pricing pressures," said Brian Levitt, an economist at OppenheimerFunds in New York.

The data and the escalating nuclear emergency in Japan sent U.S. stocks tumbling more than 2 percent at one point, in a third successive day of selling. Investors were still trying to come to grips with what impact the devastating earthquake and tsunami in Japan could have on the global economy.

Economists believe the U.S. economy should be able to withstand the shock from the oil price spike and any spillover effects from the devastation in Japan. Bond prices rose for a third straight day, sending benchmark yields to a fresh three-month low. The dollar neared a record low against the yen.

The PPI, which measures prices received by farms, factories and refineries, jumped 1.6 percent last month, the largest increase since June 2009, the Labor Department said. The gain was more than double economists' expectations.

In the 12 months to February, producer prices were up 5.6 percent, the biggest rise since March 2010.

Economists said given the lofty level of U.S. unemployment and lack of wage-driven price pressures, they did not expect the strong producer price rises to pass through to consumers on a large scale.

"You are seeing inflation on the goods side, you don't see it on the service side. This is a service economy and inflation will be driven more by wages and to this point wages are reasonable," said Levitt. "But on Main Street, you will certainly feel the shock whether it is at the gas pump or the supermarket."

A report on Thursday is expected to show the core Consumer Price Index increased just 0.1 percent in February, according to a Reuters survey, slowing from the prior month's 0.2 percent gain, which was the largest in more than a year.

HOUSING STUMBLES

The report on home building from the Commerce Department painted a bleak picture for a market lumbered by a vast backlog of unsold inventory.

Housing starts tumbled 22.5 percent last month to an annual rate of 479,000 units, just shy of a record low set in April 2009 and way below economists' expectations for 570,000 units.

Permits for future building hit 517,000 units, the lowest on records dating to 1960.

While the collapse in construction led some economists to trim economic growth estimates for the first quarter, many saw the decline merely as a correction after a hefty January increase.

"We still expect that the strengthening economic recovery will spark consumer demand, leading residential construction to pick up this year," said Celia Chen, a senior director at Moody's Analytics in West Chester, Pennsylvania.

"Given their low inventories, builders will need to construct more homes to satisfy demand once it ramps up."

A separate report showed applications for home loans dipped last week, suggesting still stunted demand ahead of the spring selling season.

The increase in wholesale prices was broad-based.

Energy prices surged 3.3 percent -- the biggest advance since January 2010 and an increase that built on January's 1.8 percent rise. Gasoline prices rose 3.7 percent to account for more than 40 percent of the overall gain in energy costs.

Food prices jumped 3.9 percent, the biggest increase since 1974, and some economists blamed the increase on bad weather.

Stripping out volatile food and energy costs, core producer prices rose 0.2 percent last month, matching expectations and easing after a 0.5 percent rise in January.

The core PPI was lifted by a 1.0 percent increase in apparel, which was the biggest rise since 1990, while passenger cars rose 0.6 percent.

In the 12 months to February, the core producer price index rose 1.8 percent, the largest increase since August 2009.

(Additional reporting by Pedro da Costa; Editing by James Dalgleish)

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Comments (12)
andrewhorning wrote:
Well, prices are rising fast, but it’s not inflation. No, certainly not. Interestingly, unemployment is down, but so is employment. We wage never-ending wars for peace and give up our liberties for freedom.
…But every day, in every way, we’re feeling better and better!

Dang; has there ever been such a stupid lot of creatures as are found in the USA?

Mar 16, 2011 11:41am EDT  --  Report as abuse
Well put Mr. Horning: christ what a bunch of balloon juice these other so called experts blow. Here is a perfect example of a Lien Lier’s Lies Celia Chen is quoted as saying:
“We still expect that the strengthening economic recovery will spark consumer demand, leading residential construction to pick up this year,” said Celia Chen, a senior director at Moody’s Analytics in West Chester Pennsylvania- adding “Given their low inventories, builders will need to construct more homes to satisfy demand once it ramps up.”
Hey lady I have a suggestion for you stop drinking their Kool-aid put on your black jogging suit and go for a walk in nearby Philadelphia before you lay down and wait for the star warriors to pick you up. “..econ recovery-demand-construction to pick up given low inventories” Such ridiculous Owellian happy talk shows shes terrified of losing her job. Moody and Poor robots are paid by Walled Off Street to lie and keep peddling their slop as Paris and Rome burn. Watch the Academy Award winning documentary film Inside Job it see another disaster in the making. Except the economic collapse was not a natural occurrence. Accordingly that makes Madem Chen’s comments all the more appalling.

Mar 16, 2011 4:04pm EDT  --  Report as abuse
DaveMinnich wrote:
Spin Spin Spin Spin Spin

Move along, nothing to see here

Spin Spin Spin Spin Spin

Mar 16, 2011 4:05pm EDT  --  Report as abuse
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