Wholesale prices in U.S. fall in January on plunge in energy

WASHINGTON – Wholesale prices in the U.S. fell more than forecast in January, led by plunging energy costs and signaling inflation remains tame even as the economy is expanding.

The 0.8 percent drop in the producer-price index was the biggest since the series began in November 2009 and followed a 0.2 percent decline in the prior month, Labor Department figures showed Wednesday in Washington. The median forecast of 73 economists surveyed by Bloomberg called for a 0.4 percent decrease. Costs were unchanged over the past 12 months.

Slower growth in Europe and some emerging markets combined with increases in supply contributed to an almost 50 percent slide in oil expenses in 2014 that will continue to filter through the U.S. economy for months. Federal Reserve policy makers, who are debating when to raise interest rates as the world’s largest economy picks up, project inflation in the median term will climb gradually back toward their goal.

“The Fed’s been steadfast in its expectations that inflation will get back to its target, and by the end of the year they’ll probably be proven right,” ” Tom Simons, an economist at Jefferies LLC in New York, said before the report. “Oil prices are likely to stabilize over the next few months.”

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Projections in the Bloomberg survey ranged from a drop of 1.1 percent to an advance of 0.3 percent.

Builders broke ground on fewer U.S. residential construction projects in January as demand for single-family homes cooled from an almost seven-year high, signaling the rebound in housing remains uneven, a report from the Commerce Department also showed on Wednesday. Housing starts declined 2 percent to a 1.07 million annual rate, following the prior month’s 1.09 million pace.

Food, energy

Food prices dropped 1.1 percent last month, the report showed. Energy expenses declined 10.3 percent in January, with gasoline down 24 percent.

Oil dropped almost 50 percent by the end of last year from June as U.S. crude output surged and the Organization of Petroleum Exporting Countries decided to let rival producers deal with a global surplus.

Wholesale prices excluding food and energy fell 0.1 percent following a 0.3 percent gain in December. They were forecast to rise 0.1 percent. Those costs were up 1.6 percent from January 2014.

Excluding trade

Also eliminating trade services, which some economists prefer because it strips out one of the most volatile components of PPI, costs fell 0.3 percent last month after rising 0.1 percent. The decrease was led by a decline in out-patient health care.

The producer price gauge is one of three monthly inflation reports released by the Labor Department, which also produces the consumer price index and the import cost measure.

The Fed’s preferred inflation gauge, based on personal consumption expenditures, rose 0.7 percent in December from a year earlier and has lingered below the central bank’s 2 percent goal for 32 months.

Policy makers have indicated they expect price pressures to continue to ease for now. In a Jan. 28 statement after the Fed’s meeting, officials said that while inflation “is anticipated to decline further in the near term,” it is likely to rise gradually toward its 2 percent goal “over the medium term” as the impact of low oil prices diminishes.

Minutes of the meeting will be released later on Wednesday.

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