U.S. Producer Prices Probably Rose 0.3% in January: BN Survey

[Paciente]

U.S. Producer Prices Probably Rose 0.3% in January: BN Survey


Feb. 18 (Bloomberg) -- U.S. wholesale prices probably rose in January, led by a rebound in energy costs, according to a survey of economists before today's government report. Another report may show consumer confidence has stalled.

The projected 0.3 percent rise in the producer price index, a gauge of what factories, farmers and other suppliers receive for their goods, would follow a 0.3 percent decrease in December. The forecast is based on the median estimate of 74 economists surveyed by Bloomberg News. The core index, which excludes energy and food, probably rose 0.2 percent for a third month, the survey shows. The Labor Department report is scheduled for 8:30 a.m. in Washington.

Manufacturers and other producers, struggling with rising costs for raw materials such as crude oil, are attempting to raise prices to maintain profits. Rising demand and less competition from abroad may be allowing some of the price increases to stick. Federal Reserve Chairman Alan Greenspan, in his report to Congress this week, said inflation remains ``well anchored.''

``Inflation continues at a slightly elevated, but not yet worrisome, pace,'' said Michael Gregory, a senior economist at BMO Nesbitt Burns in Toronto, whose forecast matched the median. ``It's not at the point yet where it is ringing alarm bells and just fits perfectly into the tone of Greenspan's testimony.''

The University of Michigan may report consumer confidence was little change in February after declining a month earlier. The university's index will probably register 95.5 in its preliminary reading for the month, according to the median of forecasts. The index fell to 95.5 in January from 97.1 in December. The report is expected at about 9:50 a.m. Washington time. Consumer confidence has been hurt by higher oil prices and falling stock values.


December's PPI Decline

December's decline in the producer price index was the first in six months and the largest in more than a year, according to Labor Department data. The government this week revised factors it uses to adjust wholesale prices for seasonal variations.

The new factors suggest the government anticipated a big jump in energy prices for January, damping expectations for an increase in the report, said Michael Englund, chief economist at Action Economics LLC in Boulder, Colorado.

Englund dropped his PPI forecast to a gain of 0.1 percent from a previously estimated 0.5 percent jump. The ``new seasonal factors have significantly altered the swing in inflation in 2004 and have damped the upside risk for this January,'' he said.

Crude oil prices on the New York Mercantile Exchange averaged $46.85 a barrel in January, up from $43.26 in December. Last year, crude oil averaged a record $41.48. The price of wholesale, unleaded gasoline averaged $1.32 a gallon last month, compared with $1.18 a month earlier, according to a Bloomberg News survey.

Faced with rising costs for oil, steel and other commodities, some manufacturers such as Deere & Co. are raising prices.


Effect of Profits

Deere, the world's largest farm-equipment maker, said this week that first-quarter profit rose 30 percent as farmers bought new machinery to replacing aging equipment. The Moline, Illinois- based company raised prices twice in the past three months to try to recoup higher costs.

Greenspan was sanguine about the outlook for inflation because the jump in corporate profits suggested companies could limit price increases in coming months.

``With profit margins already high, competitive pressures have tended to limit the extent to which cost pressures have been reflected in higher prices,'' Greenspan said.

``Our price realization is really offsetting material cost increases,'' said Nathan Jones, chief financial officer at Deere, during a conference call with investors Feb. 15.

Auto prices probably rose last month when carmakers reduced incentives after sales surged to a three-year high in December. The industry's incentive spending per vehicle fell to an average $4,143 in January from $4,320 the previous month, according to Bandon, Oregon-based CNW Marketing Research.


Auto Sales

Fewer discounts meant fewer purchases last month. Car sales totaled 16.2 million at an annual rate compared with 18.4 million in December, according to industry figures. Ford Motor Co. stepped up incentives last week with 5-year, no-interest loans on Explorer sport-utility vehicles and some F-Series pickups, matching General Motors Corp. after sales of the two largest U.S. automakers fell.

Still, with the economy growing, consumer prices at likely to trend higher in coming months, according to Joseph Abate, a senior Lehman Brothers Inc. economist in New York. The Labor Department will report on Feb. 23 its consumer price index for January.

Companies' ability to pass along higher prices ``is yet to be tested,'' said Abate. ``Overall, the risks to CPI inflation are to the upside.''



                          Bloomberg Survey

          FIRM                        PPI       PPI      U of M
                                                   Core      Conf.
          ---------------------------------------------
          Number of replies        74        71         58
          MEDIAN                   0.3%    0.2%      95.5
          AVERAGE                 0.3%    0.2%      95.4
          High Forecast           0.8%    0.4%      98.0
          Low Forecast          -0.3%   -0.2%      88.5
          Previous                 -0.3%    0.2%      95.5