Energy, food prices push up wholesale inflation in August

WASHINGTON, Thu Sep 13, 2012 – Producer prices rose by the most in three years in August as the cost of energy surged, a government report showed on Thursday, but underlying inflation pressures were contained.

The Labor Department said its seasonally adjusted producer price index increased 1.7 percent last month, the largest gain since June 2009 and accelerating from July’s 0.3 percent rise.

Economists polled by Reuters had expected prices at farms, factories and refineries to rise 1.1 percent last month.

Wholesale prices excluding volatile food and energy costs rose 0.2 percent, slowing from a 0.4 percent increase in July. The rise matched economists’ expectations.

Despite the rise in overall wholesale inflation last month, there is likely to be little pass-through to consumers given sluggish job growth and tepid domestic demand.

Consumer inflation is currently below the Federal Reserve’s 2 percent target. Officials from the U.S. central bank were meeting for a second day on Thursday to deliberate on policy.

Fed’s Williams sees big costs to boosting inflation

DANA POINT, Calif., Fri May 4, 2012 – Boosting inflation purposefully to prod people into spending more would hurt the economy much more than it would help, San Francisco Federal Reserve Bank President John Williams said on Friday.

The positive effects of such an effort “would be modest,” Williams said after a speech to the California Bankers Association. “The potential costs would be quite significant.”

Nobel-Prize winning economist Paul Krugman has advocated pushing inflation up in order to boost the recovery.

The Fed targets a 2 percent annual rate of inflation.

Federal Reserve Bank’s Bullard says inflation targeting near: report

ST. LOUIS ― Central bankers are approaching a deal to set an explicit inflation target, a top Federal Reserve official said, part of a campaign to boost the economy by guiding expectations on interest rate policy.

“We are very close to having inflation targeting in the U.S.,” James Bullard, president of the St. Louis Federal Reserve Bank, told Bloomberg Radio in an interview on Thursday. A story of his remarks was posted to Bloomberg’s website on Friday.

“We are getting closer to being able to make a committee-wide statement about these longer-term policy goal issues,” Bullard said.

Since the 2007-2009 recession, the Fed has adopted new communication strategies to improve transparency and support growth by making clear that borrowing costs will be held low for an extended period.

Expectations of low interest rates can encourage investors to buy higher-yielding assets like company shares, providing the companies with more capital. Similarly, banks could be pushed to boost their own earnings by lending more money.

In the last four policy meetings, the Fed has said it will likely hold interest rates at ultra-low levels until at least mid-2013.

Minutes of its most recent meeting in December showed policymakers plan to begin publishing their forecasts for rates. It also showed they debated a statement on their longer-term goals and policy strategies. Officials are set to resume their discussion at their next policy meeting on Jan. 24-25.

Providing an explicit inflation target could help ease concerns that the Fed might take its eye off inflation in its effort to spur stronger growth. In addition, if inflation looks unlikely to breach the Fed target anytime soon, investors can count on the Fed holding open the monetary spigot.Individual forecasts from Fed policymakers have shown most aim to keep inflation in a 1.7 percent to 2 percent range, but an explicit target that they all agree on could give the public and financial markets a clearer prism to gauge how the central bank might respond to incoming data.

According to Bloomberg, Bullard said a Fed statement of longer-run goals “would name a target but it would also reiterate things we have said over the years about how keeping inflation low and stable contributes to great economic performance over all.”

U.S. consumer prices rise for 11th straight month

WASHINGTON — U.S. consumer prices rose for the 11th straight month in May but at a slower pace amid easing energy prices, official data showed Wednesday.

The consumer price index climbed a seasonally adjusted 0.2 percent, the Labor Department said. Year-on-year, prices were up 3.6 percent, chewing away at consumers’ earnings.

Core inflation – a key measure that excludes volatile fuel and food prices, and is watched by the Federal Reserve to set interest rates – jumped by 0.3 percent in May from the previous month. That was the sharpest increase since July 2008.

But the core inflation figure, despite May’s surge, remained 1.5 percent year on year, still well within the Federal Reserve’s inflation comfort zone. The month’s headline CPI figure was half the 0.4 percent increase in April but double the average analyst forecast of a 0.1 percent gain.

Overall energy prices led the slowdown, with gasoline prices falling for the first time since last June, by 2.0 percent. But household energy prices rose, as did food prices, which surged 0.4 percent for the second consecutive month.

The pullback in energy costs for US consumers “is a positive development that should help limit some of the fallout from the May report, especially since the spike in energy prices has been widely regarded as a major catalyst contributing to the soft patch of data of late,” said Patrick O’Hare at Briefing.com.

The latest numbers on a 12-month basis showed building momentum in consumer prices. Broad inflation was only 1.1 percent as recently as November, the department noted.