US March producer prices rise 0.7%

April 19 | Updated: Apr 20 2005, 05:30am hrs
US wholesale prices rose in March by the most in four months, driven by higher energy costs that threaten to slow the economy, a government report showed.

The 0.7% increase in the measure of prices paid to factories, farmers and other producers followed a 0.4% rise in February, the Labour Department said today in Washington. Excluding energy and food, the so-called core measure of producer prices rose 0.1%, less than forecast.

The core rate suggests companies are having limited success in passing on higher energy costs, reinforcing forecasts that Federal Reserve policy makers wont step up the pace of interest rate increases as the economy shows signs of slowing.

The inflationary pressures are still there, so the Fed will continue raising rates, said Roger Kubarych, a senior economic adviser at HVB America, before the report. A month ago there was some talk over whether the Fed should accelerate its pace of rate increases, but there are too many signs of weakness in the economy for that to happen now, he added.

Data last week showed slower growth in retail sales and a slowdown in manufacturing. While increases in energy and food costs are easily passed through to consumers, corporate success in boosting prices for other goods has been more limited. Core consumer goods prices rose 0.6% last year after declines in 2003 and 2002, Labor Department data show. Prices paid to producers excluding food and energy rose 2.2% in 2004.

Economists forecast a 0.6% gain for the March producer price index, based on the median estimate in a Bloomberg News survey. Estimates ranged from rises of 0.4% to 1%. The core, which increased 0.2% in February, was forecast to increase 0.2%.

Producer prices rose 4.9% during the past 12 months, compared with a 4.7% rise in the year ended in February. Core prices were up 2.6% from March of last year compared with a 2.8% year-over-year rise in February. Costs of intermediate goods, those used in earlier stages of production, rose 1% last month.