The Bureau of Labor Statistics reported that producer prices for finished goods rose 0.4 percent in December. This follows declines of 0.2 percent and 0.1 percent in October and November, respectively. On a year-over-year basis, producer prices have risen 1.2 percent since December 2012. This suggests a bit of pickup in the annual rate, up from 0.3 percent in October and 0.7 percent in November.
Nonetheless, pricing pressures remain quite minimal for the most part. Year-over-year core inflation, which excludes energy and food costs, was 1.4 percent in December, up from 1.3 percent in November. Note that the annual pace of price increases has been below 2 percent – the stated goal of the Federal Reserve – for all of 2013. This frees the Fed to pursue highly accommodative monetary policies to stimulate growth, with worries about inflation reduced (at least for now).
The increase in producer prices in December was due to higher energy costs. The price of finished energy goods increased 1.6 percent in December, up primarily from diesel fuel and home heating oil. Crude energy costs were also higher, up 6.2 percent, on increased petroleum costs. Indeed, the cost of West Texas intermediate crude oil rose from $92.55 per barrel at the end of November to $98.17 at the end of December. In contrast to energy, food costs were off 0.6 percent in December, with vegetable prices leading the data lower.
For manufacturers, there were modest gains in raw material costs, up 0.3 percent in December. Yet, overall pricing pressures have been minimal over the course of the past year, with producer prices in the manufacturing sector rising just 0.6 percent over the past 12 months.
Nonetheless, there were some sector that experienced more rapid changes in input cost in December than the overall average suggests. The largest increases in monthly raw material costs were seen in the following sectors: wood products (up 4.5 percent), leather and allied products (up 3.9 percent), paper products (up 3.1 percent), nonmetallic mineral products (up 2.9 percent), plastics and rubber products (up 2.4 percent), beverages and tobacco (up 2.0 percent), apparel (up 1.7 percent), textile products (up 1.6 percent), chemicals (up 1.3 percent), and machinery (up 1.2 percent). Still, these shifts mostly reflect some recent volatility in the data, with annual rates of change that were more consistent with the overall year-over-year average.
Chad Moutray is the chief economist, National Association of Manufacturers.
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