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Dec. producer prices jump 0.9%, but core PPI is tame
1/13/2006 8:44 AM


WASHINGTON (Reuters) — Soaring prices for energy and food pushed producer prices up 0.9% last month, but prices were well-contained outside those volatile areas, a government report showed Friday.

Meanwhile, retail sales rose a slightly smaller-than-expected 0.7% in December and were up just 0.2% when auto purchases were excluded, another report showed, but November's sales were revised sharply higher. (Related: Businesses ready to raise their stakes in the economy)

The rise in the producer price index, a gauge of prices received by farms, factories and refineries, was the largest since September and handily outstripped expectations on Wall Street, where economists had looked for a 0.4% increase.

But the Labor Department said the so-called core PPI, which excludes food and energy, edged up 0.1% for the second straight month, suggesting that underlying inflation pressures remain muted. Financial markets had expected the core index to rise 0.2%.

The modest rise in core prices will likely come as welcome news to Federal Reserve policymakers, who meet at the end of the month to set interest rates.

For the year as a whole, the producer price index jumped 5.4% on the back of a 23.9% increase in energy costs. It was the biggest calendar year gain since 1990 although the 12-month gain was higher in October last year.

Energy prices, which surged in September and October, had fallen in November, pulling overall producer prices down. But last month, they resumed their climb, increasing 3.1%.

Food costs moved up a hefty 0.9%, building on a 0.5% November gain. Vegetable prices jumped 21.7% in December, the biggest gain in more than a year.

For all of 2005, retail sales grew 7.3%, just beneath the 7.6% gain in 2004. Excluding autos, sales for the year were up 8.3%, the Commerce Department said.

Analysts had forecast retail sales to jump 0.9% last month, helped by sales of autos and electronic goods ahead of the holidays. Sales excluding autos had been expected to rise 0.4%.

The lower-than-expected increases in December were offset by a strong upward revision to November data, however. November sales were revised to a 0.8% gain from an initially reported 0.3% advance.

Car sales, lifted by hefty incentives, jumped 2.6% following a 5.7% surge in November. November's increase was first reported as a 2.6% gain.

Retail sales help to guide expectations for overall consumer spending in the economy, which some expect to dip to 0.5% growth in the fourth quarter from a 4.1% rise in the previous three months.

U.S. retailers had already reported a mixed Christmas shopping season, with earnings somewhat offset by heavy discounting at the end of the holiday period.

Demand for goods at electronics and appliance stores fell 0.1% in December, while general merchandise posted a 0.3% dip and sales of clothes and clothing accessories were unchanged.

Sales at gasoline stations, which have been highly volatile all year because of swings in the price of petroleum, were up 0.9% after slumping 6.1% the previous month.

http://www.usatoday.com/money/economy/inflation/2006-01-13-ppi-retail_x.htm