Producer Prices U.S. Decrease for First Time in Four Months

Wholesale prices in the U.S. fell in April for the first time in four months, led by a decline in fuel costs that signals inflation may cool.

The producer price index dropped 0.2 percent after no change in March, Labor Department figures showed today in Washington. Economists projected the gauge would be unchanged in April, according to the median estimate in a Bloomberg News survey. The 1.9 percent increase over the past 12 months was the smallest since October 2009.

Falling raw-material costs mean companies will have less incentive to charge customers more. Slowing inflation would underscore views of some Federal Reserve policy makers who have said higher fuel prices will have only a temporary effect, allowing the central bank to stick to its plan to keep interest rates low at least until late 2014.

“Inflation’s not really a worry, neither is deflation at this stage,” said Sean Incremona, a senior economist at 4Cast Inc. in New York, who accurately forecast a decline in the producer-price index. “It doesn’t seem like there’s much cause for companies to pass along costs at this point.”

Stock-index futures held earlier losses after the report. The contract on the Standard & Poor’s 500 Index maturing in June dropped 0.8 percent to 1,347.3 at 8:45 a.m. in New York after JPMorgan Chase & Co. revealed it had a $2 billion trading loss.

So-called core prices, which exclude food and fuel, rose 0.2 percent in April, matching the median forecast of economists surveyed, after climbing 0.3 percent the prior month, today’s report showed. About a quarter of the increase in April was attributable to pharmaceuticals, the report said.
Core Cools

The core index advanced 2.7 percent over the past year, the smallest 12-month gain since August.

Fuel expenses dropped 1.4 percent last month, the biggest decrease since October, while food costs climbed 0.2 percent.

Oil prices have kept retreating after reaching the highest level this year. Brent oil for May delivery has dropped 11 percent through yesterday’s close from a peak of $126.22 a barrel on March 13.

Fed Chairman Ben S. Bernanke said on April 25 that a rise in gasoline prices “has created a temporary bulge” in inflation that’s likely to “pass through the system.”

Cheaper agriculture and materials may reduce pressure on companies to raise prices on American consumers facing an 8.1 percent unemployment rate. The Thomson Reuters/Jefferies CRB commodity index was 294.83 yesterday, down 9.5 percent from a five-month high reached Feb. 24.
Commodity Costs

That decline has helped food companies like Sara Lee Corp. (SLE)

“We are currently not anticipating any significant commodity inflation,” Mark Garvey, chief financial officer at the Downers Grove, Illinois-based firm, said on a May 3 earnings call.

The cost of intermediate goods dropped 0.5 percent, the most since October, reflecting the drop in energy expenses, today’s report showed. Crude prices decreased 4.4 percent, a decline last exceeded in February 2009.

Producer prices are one of three monthly inflation gauges reported by the Labor Department. The cost of goods imported into the U.S. fell 0.5 percent last month, reflecting lower costs for fuel. The consumer-price index is due May 15.