Wholesale prices in US unexpectedly rise on higher food costs

[WASHINGTON] Wholesale prices in the US unexpectedly increased in January as higher food costs more than made up for the plunge in energy.

The 0.1 per cent gain in the producer-price index followed a 0.2 per cent decline in December, Labor Department figures showed Wednesday in Washington. Wholesale prices were down 0.2 per cent from January 2015.

Inflation has been muted for much of the past few years, exacerbated recently by a continued drop in oil prices. As that decline stabilizes and the labor market strengthens, Federal Reserve policy makers are betting that inflation will drift closer toward their goal.

"Over the medium term, depending on how long you take that out, hitting the 2 per cent target should be pretty achievable," Brian Jones, senior US economist at Societe Generale in New York, said before the report.

Another report Wednesday showed new-home construction in the US unexpectedly cooled in January, indicating there is a limit to how much gains in residential real estate will boost growth at the start of 2016. Housing starts dropped 3.8 per cent to a 1.1 million annualized rate, the weakest in three months, from a 1.14 million pace the prior month, according to Commerce Department data.

The median forecast of 63 economists surveyed by Bloomberg called for a 0.2 per cent month-over-month decrease in wholesale prices. Estimates in the survey ranged from a 0.7 drop to unchanged.

Food prices increased 1 per cent last month, the biggest gain since May, after a 1.4 per cent drop. Energy expenses declined 5 per cent in January after a 3.5 per cent drop the month before.

Wholesale prices excluding these two components climbed 0.4 per cent in January from the month before, compared with the 0.1 per cent increase seen by the median forecast of economists surveyed. It followed a 0.2 per cent increase in December. Those costs were up 0.6 per cent from January 2015.

Also eliminating trade services to arrive at a reading some economists prefer because it excludes one of the report's most volatile components, wholesale costs rose 0.2 per cent in January from a month earlier, the same as in December.

BLOOMBERG