U.S. wholesale prices posted their biggest monthly increase in 15 years in September, and prices rose at earlier stages of production, in further signs of the impact that hurricanes Katrina and Rita are having on the economy.
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A = PPI, B = Excluding food and energy source: Labor Dept. Mindfully.org
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The Labor Department said the producer-price index, which measures the average change in prices for domestic producers of goods and services, climbed 1.9% last month, reflecting high energy costs and strained supplies caused by storm damage to Gulf Coast producers and processors. Food prices also rose significantly, officials said.
Energy prices were rising before the hurricanes, however, and that is reflected in the 6.9% rise in producer prices during the past 12 months, also reported yesterday.
Core producer prices, which exclude food and energy, remained fairly benign, rising 0.3% in September, seasonally adjusted, compared with no change recorded in August, the report said. While that has somewhat relieved economists who had been concerned about prices passing through to consumers, they question how long the trend will last, and some predict that businesses might have a hard time passing on these costs.
"The real fear is that energy [costs] are going to get filtered down to core," said Steven H. East, chief economist at Friedman Billings Ramsey, an Arlington, Va., research and investment firm.
Intermediate- and raw-materials prices also surged last month, showing price pressures growing earlier in the production process. Intermediate-materials prices rose 2.5% in September from 0.7% in August, while the prices for raw materials grew 10.2% from 2.3%.
Amid these signs, a Federal Reserve official raised the prospect that the central bank may quicken its pace of interest-rate increases if inflation pressures intensify.
The Fed has raised its short-term interest rate target 11 times by a quarter percentage point, to 3.75%, in what it has termed a "measured" pace. Last night, Fed Vice Chairman Roger Ferguson said he thought "for now" rates ought to continue to rise at that clip. But he also said they could rise "at a faster pace if inflation pressures seem to be building to a greater extent than expected."
Mr. Ferguson also told the Metropolitan Trenton, N.J., African American Chamber of Commerce that if "economic weakness emerges," the pace of rate moves could also be adjusted, that is, the Fed could pause. But Ted Wieseman, an economist at Morgan Stanley, noted that Mr. Ferguson seemed more worried about inflation than growth, implying that a switch to bigger rate increases was likelier than a pause.
"The outlook for the economy remains solid despite the devastating blows delivered to the Gulf Coast by Hurricanes Katrina and Rita," Mr. Ferguson said. "The hurricanes have, however, adversely affected the outlook for inflation," he said, by damaging the energy production infrastructure.
Meanwhile, the Conference Board, a nonprofit research organization in New York, yesterday reported a drop in new online job postings. This latest monthly figure is down 4.4% from August, with fewer jobs being offered in all nine major regions of the U.S., said Conference Board labor economist Ken Goldstein. There were 1.36 online job ads per 100 people in the U.S. labor force in September, compared with 1.43 ads per 100 people in August, the report said.
--Greg Ip contributed to this article.
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