Producer Price Index Inches Upward

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September 14, 2005--High energy costs pushed overall producer prices up by 0.6% last month, a slower rise in inflation than analysts feared, Labor Department figures showed Tuesday.

According to a National Federation of Independent Business survey for August, also released Tuesday, small businesses appeared unfazed by the higher prices.

The Labor Department's monthly producer price index showed broad inflationary pressure, which many expected to boost overall prices by 0.8% and prices outside food and energy by 0.1%, was offset by a decline in prices for food and vehicles over the same period.

The August index reflected mid-month prices and was unaffected by Hurricane Katrina, the department noted.

Still, well before the storm shut down oil refineries throughout the Gulf Coast, energy prices had climbed by 3.8% in August following a 12.8% rise in July, the index showed. The price of natural gas was up 4.6%, as was crude petroleum, at 3.7%.

Record-high energy prices, borne by farms, factories, and other producers nationwide, have since spiked in the aftermath of the storm. They are now dropping to pre-Katrina levels.

By contrast, food prices were down for the second month in a row, falling 0.3% in August. Haseeb Ahmed, an economist at JP Morgan, said that alone took a full 0.1% off the overall price index. That and declines in the volatile passenger car index, dropping 1.3% last month, he said. Light trucks, which rose 1.4% in July, were up just 0.5% in August. "Vehicle prices alone can explain over 0.3% of the deceleration between July and August," Ahmed said. Excluding those prices, he said, the producer price index has stayed within a 0.2% to 0.1% range over the five months ending in August.

Despite the higher prices, small business owners are expecting continued growth this year, the NFIB's Small-Business Optimism Index showed.

Conducted before the storm, the survey showed the number of owners planning to make capital expenditures in the second half of the year up two points to 31% over July. More than one-fifth said it was a "good time" to expand, a point higher than July and a record-high for the index, which was launched in the early 1970s.

The survey also showed firms are absorbing higher delivery prices, rather than increasing prices, said William Dunkelberg, the NFIB's chief economist.

"Katrina does put a wrinkle in the outlook," Dunkelberg said, "but the survey data indicate strong third and fourth quarters."

Last updated: Sep 14, 2005




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