Gauge signals inflation in check

Producer prices fall in February

WASHINGTON - The producer price index, which measures price changes before they reach the consumer, fell 0.1 percent in February, the Labor Department said Friday.

It was the first decline since November. A sharp fall in the price markups by wholesalers and retailers pushed down the index.

Producer prices rose 0.9 percent from 12 months ago. That’s the smallest 12-month increase since last May.

Wholesale food and energy prices increased, as did the cost of pharmaceuticals. Excluding the volatile categories of food, energy, and retailer and wholesaler profit margins, core prices ticked up 0.1 percent.

The data also reflect the effect of aggressive discounting by clothing and shoe stores. Their profit margins fell 9.3 percent, the steepest on record. Gas stations and grocery stores also reduced their markups.

The drop in the index “could be weather-related as … firms try to clear some inventories,” said Sean Incremona, a senior economist at 4cast Inc. in New York. “There could be some near-term hit, but generally the picture is pretty stable.”

The figures indicate inflation remains largely in check. Businesses have struggled to raise prices because of historically high levels of unemployment and meager wage growth. That’s made it harder for consumers to pay more. And with unemployment high, those with jobs are less able to demand higher pay.

“The overall takeaway … is that inflation pressures remain quiescent for the time being,” Joseph LaVorgna, an economist at Deutsche Bank, said in a note to clients.

The index was expanded in January to include services and construction, in addition to goods. That’s made it a more comprehensive measure.

The government will release the consumer price index, a measure of retail inflation, on Tuesday.

Low inflation has enabled the Federal Reserve to pursue stimulus programs to try to boost economic growth. It has kept the short-term interest rate it controls at nearly zero for more than five years. It has also been purchasing bonds in an attempt to lower long-term interest rates to encourage more borrowing and spending.

Consumer confidence in the U.S. unexpectedly dropped in March to a four month low, indicating household spending may be slow to pick up from a weather-related setback earlier this year.

The Thomson Reuters/ University of Michigan preliminary index of sentiment fell to 79.9 this month from 81.6 in February. The median estimate in a Bloomberg survey of economists called for the measure to increase to 82.

Consumers surveyed were more pessimistic about the outlook for the economy, indicating bigger payroll gains that lead to faster wage growth are needed to propel spending.

At the same time, fewer job cuts, higher home values and stocks close to a record will help keep sentiment from faltering.

“The winter weather is not a reason to get rosy about the economy or personal finances, so we’re seeing consumers hold here,” said Incremona. “The job market should continue to improve, albeit at a moderate pace, and we hope eventually we will see increased wages, which will be the real factor to drive spending and sentiment.”

Estimates of the 68 economists in the Bloomberg survey ranged from 79 to 84. The index averaged 89 in the five years before December 2007, when the last recession began, and 64.2 in the 18-month contraction that followed.

Information for this article was contributed by Christopher S. Rugaber of The Associated Press and by Katherine Peralta and Michelle Jamrisko of Bloomberg News.

Business, Pages 29 on 03/15/2014

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