With energy prices showing a notable decrease in the month of April, the Labor Department released a report on Friday showing an unexpected drop in producer prices for the month.
The Labor Department said its producer price index fell by 0.2 percent in April after coming in unchanged in March. Economists had expected the index to remain flat for the second straight month.
The unexpected drop in producer prices was largely due to a 1.4 percent drop in energy prices, which followed a 1.0 decrease in the previous month.
A 1.7 percent drop in gasoline prices contributed to the continued decrease in energy prices along with lower prices for residential natural gas and liquefied petroleum gas
Excluding the sharp drop in energy prices as well as a modest increase in food prices, the core producer price index edged up by 0.2 percent in April.
The modest increase in core prices, which compares to a 0.3 percent increase in the previous month, came in line with the expectations of economists.
A 0.4 percent increase in prices for pharmaceutical preparations contributed to the increase in core prices along with higher prices for civilian aircraft.
The report also showed that the annual rate of producer price growth slowed to 1.9 percent in April from 2.8 percent in March, with prices increasing at the slowest rate since October 2009.
While the annual rate of core producer price growth also slowed to 2.7 percent from 2.9 percent, the rate of growth remains elevated.
Paul Ashworth, Chief U.S. Economist at Capital Economics, said, "Falling energy prices and the recent strength of the dollar both suggest that we will eventually see core PPI inflation start to decline more substantially too."
"Overall, the drop back in energy prices and headline PPI inflation is good for real activity, but it doesn't give the Fed any more scope to launch a QE3 if needed, not when core inflation is still this elevated," he added.
Next Tuesday, the Labor Department will provide a more complete picture regarding inflation with the release of its report on consumer prices in the month of April.
The consumer price index rose by 0.3 percent in March compared to the 0.4 percent increase posted in February. The increase was in line with the expectations of most economists.
Core consumer prices increased by a somewhat more modest 0.2 percent in March, also matching the expectations of economists.
by RTT Staff Writer
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