Producer prices soar in December

Energy, food costs push index above estimates, but core figures suggest inflation still tame.

January 13, 2006: 8:48 AM EST



WASHINGTON (Reuters) - Soaring prices for energy and food pushed U.S. producer prices up 0.9 percent last month -- more than twice expectations -- but prices were well-contained outside those volatile areas, a government report showed Friday.

The rise in the producer price index, a gauge of prices received by farms, factories and refineries, was the largest since September and handily outstripped expectations on Wall Street, where economists had looked for a 0.4 percent increase. 

But the Labor Department said the so-called core PPI, which excludes food and energy, edged up 0.1 percent for the second straight month, suggesting that underlying inflation pressures remain muted. Financial markets had expected the core index to rise 0.2 percent.

The modest rise in core prices will likely come as welcome news to Federal Reserve policy-makers, who meet at the end of the month to set interest rates.

For the year as a whole, the producer price index jumped 5.4 percent on the back of a 23.9 percent increase in energy costs. It was the biggest calendar year gain since 1990 although the 12-month gain was higher in October last year.

Energy prices, which surged in September and October due to late-summer hurricanes, had fallen in November, pulling overall producer prices down. But last month, they resumed their climb, increasing 3.1 percent.

Food costs moved up a hefty 0.9 percent, building on a 0.5 percent November gain. Vegetable prices jumped 21.7 percent in December, the biggest gain in more than a year.

The department said auto prices fell 0.2 percent, with the cost of light trucks and SUVs down 1 percent.