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Higher energy and food prices threaten a fragile recovery

WASHINGTON — A spike in oil and food costs pushed wholesale prices up last month by the biggest amount in nearly a year, a trend that could threaten the still-fragile global economy.

The Producer Price Index, which measures price changes before they reach consumers, rose 1.1 percent in December, the Labor Department said Thursday. That was up from a 0.8 percent rise in November and was the largest increase since January 2010.

Outside the volatile energy and food categories, so-called core prices rose just 0.2 percent, down from a 0.3 percent rise in November. That lower reading indicates overall inflation remains tame. For all of 2010, core prices rose just 1.3 percent. That was up from a 0.9 percent increase in 2009 but still historically low.

Still, the rise in commodity prices is putting pressure on retailers. Most have so far resisted passing along price increases to consumers in the weak economy.

"The December producer price report cannot be dismissed simply because roughly three-quarters of the gain was in food and energy," said Joel Naroff, president and chief economist at Naroff Economic Advisors. "That is because food and energy cost increases are rapidly passed through to the consumer, and these are not products which you can do without very easily."

About three-fourths of the increase in wholesale prices last month was due to higher energy costs. Energy prices rose 3.7 percent. Home heating oil prices jumped 12.3 percent and gasoline prices rose 6.4 percent.

A sharp rise in gasoline prices, which now top $3 a gallon, could cause people to cut spending on other things, slowing the economy.

Food prices rose sharply, too. They increased 0.8 percent in December, following a 1 percent rise in November. The increase reflected higher prices for vegetables and fruits.

Grain prices surged to their highest level in 21/2 years Wednesday after the Agriculture Department reported that U.S. production of corn, wheat and soybeans fell last year.

A Federal Reserve survey of business conditions around the country also released Wednesday found that companies are paying more for materials, including oil, food products, steel, textile and chemicals. But competitive pressures prevented them from passing those increased costs on to customers in the form of higher prices.

Trade gap falls

The U.S. trade deficit unexpectedly shrank in November as growing global demand and a weaker dollar help boost overseas sales of everything from aircraft to cotton. The gap shrank 0.3 percent to $38.3 billion, the smallest in 10 months, as exports climbed to the highest level in more than two years, according to data Thursday from the Commerce Department in Washington.

Rising prices

The Producer Price Index, which measures price changes before they reach consumers, rose 1.1 percent in December from November, the Labor Department said Thursday. Here's a breakdown by segment:

Energy prices: +3.7 percent

Gasoline: +6.4 percent

Food: +0.8 percent

Core prices: +0.2 percent

(excluding food and energy)

Jobless claims up

The Labor Department said Thursday that the number of people seeking unemployment benefits for the first time jumped 35,000 to a seasonally adjusted 445,000 for the week ending Jan. 8. It was the highest level since late October. Applications usually rise in early January once the holiday season ends. The spike pushed up the four-week average, a less-volatile measure, to 416,500. The average had fallen to a two-year low the previous week.

Higher energy and food prices threaten a fragile recovery 01/13/11 [Last modified: Thursday, January 13, 2011 9:37pm]
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