US wholesale prices rise on more expensive food

More expensive food pushes up US wholesale prices 0.2 percent after 3 months of declines

Associated Press

WASHINGTON (AP) -- More expensive food and soda helped drive up a measure of U.S. wholesale prices in January, though overall, inflation stayed tame.

The producer price index increased 0.2 percent last month, the first increase since September, the Labor Department said Wednesday. Food prices jumped 0.7 percent, after a steep decline in December. Gasoline and other energy prices fell.

The index measures the cost of goods before they reach consumers. Wholesale prices are what manufacturers and farmers receive for their products.

In the past 12 months, wholesale prices have risen just 1.4 percent, down from a 4.1 percent increase in the 12 months ending in January 2012.

Excluding the volatile food and energy categories, core prices rose 0.2 percent in January and have increased 1.8 percent in the past 12 months.

Higher wholesale prices don't always mean consumers will soon pay more. High unemployment and weak pay gains are making it difficult for retailers to pass on higher costs to consumers.

Wholesale price increases slowed last year. In 2012, they rose just 1.3 percent, much lower than the 4.7 percent increase in 2011. Core prices rose 2 percent last year compared with a 3 percent rise in 2011.

Low inflation means consumers can spend more on other goods and services, which helps the economy. It also gives the Federal Reserve room to keep interest rates low to try to spur economic growth. If prices were to begin rising rapidly, the central bank might be forced to raise rates to try to slow inflation.

As long as the inflation outlook stays mild, the Fed said it plans to keep the short-term interest rate it controls near zero until the unemployment rate falls to at least 6.5 percent.

Inflation will likely tick up in coming months, mostly because gas prices have risen. Nationwide, the average price of gas was $3.75 a gallon on Tuesday, according to AAA. That's an increase of 45 cents a gallon in just the past month.

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