Rise in wholesale prices may signal strengthening economy

WASHINGTON - The prices companies receive for their goods and services jumped in March led by gains for food, clothing, jewelry and chemicals.

The Labor Department says the producer price index, which measures price changes before they reach the consumer, rose 0.5 percent in March. That was well above the consensus forecast of 0.1 percent.

Overall inflation remains relatively tame. Producer prices increased 1.4 percent during the past 12 months. That's below the 2 percent target set by the Federal Reserve.

Paul Dales, senior U.S. economist with Capital Economics, thinks producer prices will edge higher as the economy strengthens. But they are unlikely to shoot up, he said in a client note.

Wholesale food prices rose last month, while the costs charged for gasoline and electric power fell. Excluding the volatile categories of food, energy and retailer and wholesaler profit margins, core prices ticked up 0.3 percent.

Stronger growth usually leads to higher levels of inflation. But the economy has struggled to accelerate during the 4.5 year recovery from the Great Recession. Wage growth has been close to flat, while unemployment remains at historically high levels. This limits consumer spending and limits the ability of businesses to raise prices.

Low inflation has enabled the Federal Reserve to pursue extraordinary stimulus programs to boost spending, hiring and overall economic growth. The Fed has begun to unwind some of that stimulus, although it intends to prolong its near zero short-term interest rates, in part, because inflation has been so low.

The U.S. central bank has cut its monthly bond purchases to $55 billion, down from $85 billion last year. The bond purchases are aimed at lowering long-term interest rates to bolster growth.

The economy has started to improve after a winter slowdown. Employers added 192,000 jobs in March and 197,000 in February, according to a government report issued last week. Snowstorms and freezing temperatures cut into job gains in December and January. Hiring over the past two months suggests the economy may be gaining steam with the start of spring, likely encouraging the Fed to continue reducing its stimulus despite concerns about low inflation.


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