Ahead of the Bell: US Producer Price Index

US producer prices likely rose slightly in April as higher food costs offset by cheaper energy

Associated Press
US producer prices rise 0.5 percent in March

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FILE - In this Oct. 15, 2009 file photo, Kolleen Irwin and her daughter Ariel, 3, shop for groceries at a Target store in Philadelphia. The Labor Department reports on U.S. producer prices in March later Friday April 11, 2014. (AP Photo/Matt Rourke, File)

WASHINGTON (AP) -- The Labor Department reports on U.S. producer price inflation in April. The report will be released at 8:30 a.m. Eastern time on Wednesday.

MODEST INCREASE: Economists forecast that the producer price index rose 0.2 percent in April, according to a survey by FactSet. That would follow a 0.5 percent jump in March. The index measures the cost of goods and services before they reach consumers. In the twelve months ending in March, the index rose 1.4 percent.

FOOD PRICES DRIVE GAINS: Rising food prices likely pushed the index up, economists predict, which also happened in March.

But March's increase was also propelled by a big jump in the profit margins earned by wholesalers and retailers. Changes in those margins affect the index.

Those profits had been held down by discounting after the winter holidays and by harsh weather in January and February that kept shoppers at home. Those profit margins bounced back 3.3 percent in March. That gain probably wasn't repeated last month, economists expect.

Gas and other energy prices, meanwhile, likely fell in April, economists at JPMorgan predict. Excluding food and energy costs, analysts expect core prices also rose 0.2 percent, according to FactSet.

Inflation has been near historic lows during the past two years. The producer price index rose just 1.2 percent in 2013 after a 1.4 percent increase in 2012. Both figures are far below the Fed's preferred target of 2 percent.

Stronger growth usually leads to higher levels of inflation. But the economy has struggled to accelerate since the Great Recession ended in June 2009. Wage growth has been close to flat, while unemployment remains at historically high levels. This limits consumer spending and makes it harder for businesses to raise prices.

Low inflation has enabled the Federal Reserve to pursue extraordinary stimulus programs to try and boost spending, hiring and overall economic growth. It has begun to unwind some of its stimulus, cutting its monthly bond purchases to $45 billion from $85 billion last year. The bond purchases are intended to lower long-term interest rates.

But it has kept the short-term interest rate it controls at nearly zero since December 2008. The Fed will likely keep it there for some time, partly because inflation is so low.


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