U.S. producer prices rose in February by the most in three months, a higher-than-forecast increase that will make it harder for the Federal Reserve to reduce interest rates in the face of slumps in manufacturing and housing.
Energy, food and tobacco drove the index to a 1.3 percent gain, the Labor Department said today in Washington. Core prices, which exclude food and fuel, also increased more than anticipated.
Separate reports showed a decline in jobless claims and persistent weakness in factories.
Fed policy makers, who meet next week, are likely to view the producer price numbers as evidence of stubborn inflation that they say poses the biggest risk to economic growth. The numbers reduce Chairman Ben S. Bernanke’s flexibility to respond to a crisis in subprime mortgages, where delinquencies have climbed to a four-year high.
“Inflation is not dead,” said Scott Anderson, senior economist at Wells Fargo & Co. in Minneapolis. “It erases the probability of a Fed rescue anytime soon.”
Treasury notes and the dollar were little changed after the numbers as traders focused on tomorrow’s consumer price report. The yield on the benchmark 10-year note was at 4.54 percent at 12:04 p.m. in New York.
“I don’t know that the Fed will be able to ease rates any time soon with the persistent inflationary pressures that we’re seeing,” said Gina Martin, an economist at Wachovia Corp. in Charlotte, North Carolina. “People will be watching the CPI report more closely after today’s numbers.”
The Philadelphia Fed said manufacturing in the state barely grew. The bank’s general economic index fell to 0.2 in March from 0.6 the prior month, while a gauge of prices climbed. A similar New York Fed index dropped more than forecast, to 1.9 in March from 24.4 in February. A number greater than zero signals expansion. The Labor Department also reported today that first-time claims for unemployment benefits declined to 318,000 last week, the lowest level in more than a month.
Additional figures showed foreigners regained their appetite for American assets in January. Total purchases of equities, notes and bonds rose to a net $97.4 billion, from a revised $14.3 billion, which was the lowest in almost five years, the Treasury Department reported in Washington.
Economists had forecast producer prices would rise 0.5 percent, according to the median of 71 estimates in a Bloomberg News survey.
Estimates ranged from a decline of 0.2 percent to an increase of 1.2 percent. The increases in the overall index and the core measure last month were the biggest since November.
