Wholesale inflation rises; labor market struggles

Thu Sep 13, 2012 4:47pm EDT
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By Lucia Mutikani

WASHINGTON (Reuters) - Producer prices in August rose by the most in three years as energy costs surged, but fairly benign underlying inflation pressures should help the Federal Reserve maintain its accommodative monetary policy stance.

Other data on Thursday underscored the weakness in the labor market, a major concern for the U.S. central bank, with the number of Americans filing new claims for state unemployment benefits touching a two-month high, although some of the gain was attributed to Tropical Storm Isaac.

The Fed launched another aggressive stimulus program, saying it would buy $40 billion of mortgage-backed debt a month until the outlook for jobs improves substantially as long as inflation remained contained.

In addition, policymakers said they would not likely raise rates from current rock-bottom lows until at least mid-2015.

Economists said the strong rise in wholesale inflation last month was unlikely to translate into a sustained increase in prices at the supermarket and shopping mall, which would be troubling for the Fed.

"There is little indication that it's going to pass through to higher consumer inflation," said Gus Faucher, a senior economist at PNC Financial Services Group in Pittsburgh. "We continue to have economic growth that is modest."

The Labor Department said its seasonally adjusted producer price index increased 1.7 percent last month, the largest gain since June 2009, after rising 0.3 percent in July.

The increase in prices received by farms, factories and refineries overshot economists' expectations for a 1.1 percent advance. Energy prices, which surged by the most in three years, accounted for more than 80 percent of the rise in wholesale inflation.   Continued...

A shopper walks by the sodas aisle at a grocery store in Los Angeles April 7, 2011. REUTERS/Mario Anzuoni