Wholesale Prices in US Unexpectedly Fall as Food Costs Ebb

Wholesale prices in the U.S. unexpectedly dropped in September as food costs retreated, an indication inflation remains tame.

The 0.1 percent decrease in the producer price index followed a 0.3 percent gain the prior month, a Labor Department report showed today. The median estimate in a Bloomberg survey of 80 economists called for a 0.2 percent advance. The so-called core measure, which strips out volatile food and fuel, increased 0.1 percent after being unchanged in August.

Soft global demand has limited cost increases for raw and finished materials, restraining the pricing power of U.S. companies. That's helping to hold the line on inflation, which the Federal Reserve sees running below its 2 percent objective in the near-term, giving policy makers room to maintain monetary stimulus when they meet this week.

'Demand in the economy remains subdued,' said Laura Rosner, a U.S. economist at BNP Paribas in New York, whose forecast matched the advance in the core price measure. 'Firms are not exercising pricing power. Firms are competing by lowering their prices and competing for demand in the economy.'

Estimates in the Bloomberg survey ranged from a decrease of 0.2 percent to a 0.4 percent increase.

Core wholesale prices were projected to rise 0.1 percent after being unchanged the month before, the survey median showed.

Retail Sales

Another report showed retail sales outside of auto dealers climbed in September, indicating households were sustaining the economic expansion before the government shutdown shook confidence.

The 0.4 percent gain in purchases excluding vehicles followed a 0.1 percent increase in August and matched the median forecast of economists surveyed by Bloomberg, according to Commerce Department figures. Total sales dropped 0.1 percent, restrained by the biggest decrease at auto dealers since October 2012, as purchases early in the month were included in the August data.

Stock-index futures held earlier gains after the reports. The contract on the Standard & Poor's 500 Index maturing in December rose 0.1 percent to 1,761.2 at 8:52 a.m. in New York.

The Labor Department's report showed wholesale prices rose 0.3 percent compared with the same month a year before after a 1.4 percent rise. The core index increased 1.2 percent in the 12 months ended September, following a 1.1 percent gain.

Fuel Costs

Fuel costs climbed 0.5 percent last month from August, including increases in home heating oil and natural gas.

The cost of finished consumer foods dropped 1 percent, the most since April, led by declining costs for vegetables and beef and veal.

Expenses for intermediate goods increased 0.1 percent, while those for crude goods climbed 0.5 percent.

Tempered price increases in materials are benefiting companies including Cheesecake Factory Inc. (CAKE), which is seeing the cost of its ingredients ebb.

The decline stemmed mostly 'from general grocery costs, with lower wheat and corn prices continuing to benefit items such as pastas and oils,' Douglas Benn, chief financial officer at the Calabasas Hills, California-based restaurant chain, said in a Oct. 23 conference call.

At the same time, higher shrimp and salmon costs could impact earnings next year by as much as 10 cents a share, Benn said.

Fed's View

The Fed's Federal Open Market Committee has noted that ''inflation has been running below the Committee's longer-run objective, but longer-term expectations have remained stable,' according to a Sept. 18 statement. Even so, ' inflation persistently below its 2 percent objective could pose risks to economic performance.'

Producer prices are one of three monthly inflation gauges from the Labor Department. Import prices increased in September for a second straight month, reflecting higher fuel charges, data showed last week. The consumer-price index, the broadest of the three measures, may have increased 0.2 percent in September from the prior month, economists project before a report tomorrow.

To contact the reporters on this story: Victoria Stilwell in Washington at vstilwell1@bloomberg.net; Shobhana Chandra in Washington at schandra1@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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