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US wholesale prices up 0.4 per cent in December, driven by higher gas and heating oil costs

WASHINGTON - U.S. wholesale prices increased in December, pushed up by rising gasoline prices and energy costs. But overall inflation remained mild.

The Labor Department said Wednesday that the producer price index, which measures costs before they reach the consumer, rose 0.4 per cent last month from November. That ends three straight months of falling wholesale prices.

Gas prices increased 2.2 per cent after recent declines. Home heating oil costs grew at the fastest pace in 10 months, while diesel fuel prices increased at the biggest clip in almost four years.

Excluding volatile energy and food costs, so-called core prices increased 0.3 per cent in December. That was partly because of a one-time bump in tobacco costs.

Over the past 12 months, overall prices have risen a modest 1.2 per cent and core prices are up just 1.4 per cent. Both are well below the Federal Reserve's 2 per cent inflation target.

Businesses have struggled to raise prices because of historically high levels of unemployment and meagre wage growth. Low inflation has also allowed the Fed to pursue extraordinary stimulus programs to try and boost economic growth.

In December, prices for alcohol, tobacco, pharmaceuticals and autos all rose. The 3.6 per cent jump in tobacco prices caused by state and local government tax hikes.

Food costs fell 0.6 per cent, led by a 13.4 per cent drop in vegetables and declining prices for pork, chicken, beef and dairy products.

The increase in gasoline prices reversed two months of sharp declines. Still, prices are relatively low.

The average price of a gallon of gas was $3.31, according to AAA's Daily Fuel Gauge Report. That's up from $3.23 a gallon one month ago.

Falling gas prices through much of 2013 has limited inflation.

Raw material costs have also tumbled, keeping inflation in check for producers. Prices for corn, wheat, soybeans, cane sugar, coal and iron ore have each dropped over the past 12 months. Raw material costs increased in December, but the previous declines suggest that overall inflation should be tame in the months ahead.

Last month Fed officials trimmed the size of their monthly bond purchases $10 billion to $75 billion. But Fed Chairman Ben Bernanke warned that extremely low inflation was a concern. He said that the central bank could continue to pump money into the economy to stabilize inflation at target.

The bond purchases are aimed at lowering long-term interest rates to encourage more borrowing and spending.

The Canadian Press


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