Wholesale inflation rose last month at the fastest pace in more than 14 years, largely because of steep jumps in energy and food costs, the government reported yesterday, raising concerns that businesses may be under growing pressure to raise retail prices.
Some of the price increases were due to hurricane damage in the Southeast, which disrupted oil supplies from the Gulf of Mexico and produce shipments from Florida, while the cleanup efforts boosted demand for construction equipment and materials, financial analysts said. Those increases are likely to be reversed once supplies are restored and reconstruction is complete, they said.
But prices also rose faster in October than in the previous month for a broad range of other goods, including household furniture and appliances, floor coverings, tires, jewelry and light trucks.
Prices paid to producers for finished goods rose 1.7 percent in October after increasing just 0.1 percent in September, the Labor Department reported. Producer prices are paid to businesses by other businesses, which either use the goods or sell them at retail prices.
The consumer price index for October, to be released today, will show the degree to which businesses were able last month to start passing on such increases at the retail level.
Many analysts agreed that the PPI surge is unlikely to foreshadow similar increases in overall consumer prices.
"The run-up in Producer Prices will likely hit corporate profits harder than they hit consumer prices," Mark Vitner, a senior economist with Wachovia Economics Group, wrote in an analysis yesterday.
But some observers disagreed. "Producers may in fact be initially willing to absorb increasing costs, but ultimately, if cost increases persist, they will be forced to pass them on to their customers," wrote Peter D. Schiff, president of Euro Pacific Capital Inc. "Ignoring rising producer prices is the economic equivalent of a coal miner ignoring the death of the canary."
After excluding food and energy prices, the so-called core PPI rose a solid 0.3 percent last month, the same as the month before.
Over the 12 months that ended in October, the PPI climbed 4.4 percent, while the core rose 1.8 percent.
The PPI's rise last month was driven in part by a 6.8 percent increase in energy prices, including a 17.3 percent jump in gasoline prices, and higher prices for electricity, natural gas and home heating oil.
Food prices at the producer level rose 1.6 percent, reflecting a 34.2 percent upsurge in fresh and dry vegetable prices, as well as higher prices for fruit, beef, veal, pork, soft drinks and dairy products.
Businesses also paid more for capital equipment, including light trucks, construction machinery, agricultural machinery and civilian aircraft. Some analysts speculated that these increases may have partly reflected a year-end spurt in demand fueled by a tax rule that encourages such purchases. The tax benefit expires at the end of next month.
Businesses have complained all year about their rising costs for metals, lumber, grain and other commodities, as well as for energy, building materials and shipping. But they have largely chosen not to pass those costs to consumers, either because the companies feared losing market share to competitors or because they enjoyed enough profit that they could absorb the price increases.
Businesses also have been able to increase production without expanding their workforces as much because of new processes and equipment that enhance productivity, or output per hour of labor.
Consumer inflation has been quite tame in recent months, according to a Commerce Department index preferred by Federal Reserve officials. That measure showed that overall consumer prices rose by 2 percent in the year ended in September, while core prices rose just 1.5 percent -- well within the Fed's comfort zone.
"Overall inflation remains low and has even moderated during the recent surge in oil prices," Fed Bank of Chicago President Michael H. Moskow said in a speech yesterday.
Higher oil prices will "not necessarily" translate into higher inflation, but there is a danger that businesses and consumers will develop self-fulfilling expectations that prices will rise, he said. "So the Federal Reserve must be vigilant in monitoring inflationary expectations and be prepared to act if they threaten price stability."
Fed officials raised their key benchmark interest rate last week, for the fourth time since June, to prevent long-term inflationary pressure from building. And they indicated after their meeting Wednesday that they will continue to gradually lift the rate in the months ahead.
The jump in the PPI, which far exceeded Wall Street's forecasts, strengthened many analysts' belief that the Fed will raise the rate again as soon as its next meeting Dec. 14, to 2.25 percent from 2 percent.