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Prices for wholesalers rose in December 0.4 percent after falling in the previous two months.

Wholesale prices for December rise, but prices likely to remain steady in 2014

by Alex Norman
Jan 15, 2014

U.S. prices for finished goods at the wholesale level rose in December in line with economists’ estimates. The numbers marked an increase from previous months when prices dropped in November and October. They also represented a change from last December when prices fell by 0.1 percent.

The Producer Price Index advanced 0.4 percent last month, matching estimates of economists surveyed by Bloomberg. The core index, which excludes volatile prices of food and energy, rose by 0.3 percent. That was higher than initial estimates of 1.3 percent.

To come up with the Producer Price Index, the Bureau of Labor Statistics surveys wholesale producers of everything from tobacco to apparel to food products.

Nearly half of the December increase in the core index was attributable to wholesale prices for tobacco products, which climbed 3.6 percent.

Peter Newland, an economist with Barclays Capital, predicted the relative jump in tobacco prices will be short lived but prices for other goods will rise.

“The big spike in tobacco prices probably won’t persist,” Newland said. “I think vehicle prices and clothing prices will show further signs of picking up.

Historically, higher prices at the wholesale level tend to trickle down to prices paid by consumers, but Newland said he sees a trend toward steadier prices in 2014.

The monthly index measures prices for goods at three stages of production: finished goods, intermediate goods and raw goods. The price for intermediate goods increased 0.6 percent in December after two consecutive declines and the price for raw materials increased 2.4 percent.

For the three months that ended Dec. 30, prices of raw goods fell 1.1 percent.

Russell Price, an economist with Ameriprise Financial Inc., said he sees a rebound in the cost of one raw material: gasoline. The price index for the commodity rose 2.2 percent, while prices for crude petroleum rose 7.1 percent.

All in all, Price said that customers should take December’s numbers as a positive sign because prices remain relatively in check and show no signs of deflation, which would be bad for the economy and eventually wages.

“Businesses don’t have pricing power and they’re competing for consumers business,” Price said. “Right now the inflation story is in consumers' favor.”