US producer prices rose in August as energy costs shot up

FILE - In this Thursday, Aug. 17, 2017, file photo, solar tech Joshua Valdez, left, and senior plant manager Tim Wisdom walk past solar panels at a Pacific Gas and Electric Solar Plant, in Dixon, Calif. Higher energy costs led to prices at the wholesale level rising in August 2017 at the fastest pace in four months, according to information released Wednesday, Sept. 13, 2017, by the Labor Department. (AP Photo/Rich Pedroncelli, File)

WASHINGTON - Higher energy costs led to prices at the wholesale level rising in August at the fastest pace in four months.

The Labor Department said Wednesday that its producer price index, which measures inflation pressures before they reach the consumer, rose 0.2 per cent last month. It was the largest monthly increase since a 0.5 per cent gain in April. Inflationary pressures have largely been subdued in recent months. Much of the increase in August came from a 3.3 per cent surge in energy costs. Food expenses slipped in August, including a sharp 20.6 per cent decline in wheat prices.

The survey was taken before Harvey and Irma struck the southern part of the United States, events that will likely cause prices to further rise in the coming months as the rebuilding process begins. Ian Shepherdson, chief economist at Pantheon Macroeconomics, said he is "braced" for a temporary "spike" in producer prices because of the hurricanes.

Core inflation, which excludes volatile food and energy costs, rose 0.1 per cent last month. Over the past 12 months, wholesale prices are up a moderate 2.4 per cent while core prices have risen 2.0 per cent.

Despite the monthly increase, relatively low inflation has been a constant throughout the recovery from the Great Recession will continue. For the past five years, inflation has stayed below the Federal Reserve's target of annual price gains of 2 per cent. The Fed's preferred measure of core inflation for consumers has risen just 1.4 per cent over the past 12 months.

For producers, food expenses slipped in August. This included a sharp 20.6 per cent decline in wheat prices, the biggest decline since April 2008. Producer costs for plastics, investment advice and airline passengers also fell in August.

Prices for iron and steel scrap rose in August as did the costs for industrial chemicals.

The Fed is closely monitoring inflation to determine whether to raise a key short-term interest rate.

The U.S. central bank raised the rate in March and June from relatively low levels. Many investors and analysts believe it could hike the rate against at a December meeting, but that depends in large part on whether inflation appears to be headed toward staying consistently at 2 per cent.


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