April 20, 2005
By Tim Ahmann
Yahoo News
WASHINGTON (Reuters) - U.S. producer prices inched up 0.1 percent last month with volatile energy and food prices stripped out, easing inflation fears, while housing starts plummeted as weather slowed new construction.
The Producer Price Index, a gauge of prices received by farms, factories and refineries, shot up 0.7 percent in March as energy costs surged, the Labor Department said on Tuesday. It was the largest gain since an energy-led spike in November.
But outside of food and energy costs, producer prices advanced a mild 0.1 percent for the second straight month.
Separately, the Commerce Department said housing starts plunged 17.6 percent in March, their biggest drop since January 1991, to a 1.837 million unit rate from an upwardly revised 2.229 million unit pace in February.
Wall Street economists had looked for housing starts to slip a far smaller 4.8 percent and many blamed poor weather for the worse-than-expected showing. The producer price report, in contrast, came in close to forecasts.
Prices for U.S. government bonds rose, with the yield on the benchmark 10-year note touching two-month lows, and the dollar slipped as traders saw the data lessening chances the Federal Reserve would raise interest rates aggressively to damp price pressures.
Inflation relief also combined with upbeat earnings news to give a boost to stocks. The blue chip Dow Jones industrial average closed up 56 points at 10,127.
"The housing data are further evidence of a loss of momentum in the economic expansion but (present) no genuine threat of an outright slowdown," Roger Kubarych, senior economic adviser at HVB Bank, said in a research note.
ENERGY MARCHES ON
Energy prices shot up 3.3 percent in March, the biggest jump since October, with gasoline prices up 5.3 percent, home heating oil up 15.7 percent and residential natural gas up 2.3 percent. Food prices advance 0.3 percent.
Over the past 12 months, producer prices have risen a sharp 4.9 percent -- the biggest year-on-year gain since November -- as oil prices have pushed higher.
Oil prices hit a record high above $58 a barrel early this month, but quickly retreated. Some analysts expect some energy price relief when the April producer price report is released.
The cost of business capital equipment contributed to the pickup in overall producer prices, rising 0.3 percent -- a turnaround from a February drop. But prices for non-energy consumer goods edged up just 0.1 percent.
Prices for cars, light trucks and SUVs slipped 0.2 percent last month, the second consecutive monthly drop, and the cost of computers plunged 3.4 percent.
Stephen Gallagher, chief U.S. economist at SG Corporate & Investment Banking, said the vehicle price declines reflected an inability among automakers to make higher prices stick and might signal a wider lack of corporate pricing power.
Some economists warned, however, that even though core finished goods prices were well contained, price pressures were still bubbling at earlier stages of production.
"I don't think inflation is dead by any stretch of the imagination," said Ram Bhagavatula, chief economist at Royal Bank of Scotland Financial Markets in New York.
Economists will look closely at a reading on consumer prices the Labor Department is set to release on Wednesday for clues on how quickly interest rates may rise.
WIDESPREAD WEAKNESS
The housing starts report showed widespread weakness, with groundbreaking activity for both single-family and multifamily homes tumbling and activity off across the nation.
In recent weeks, several U.S. home builders have reported construction delays due to severe weather. Ryland Group Inc. and MDC Holdings Inc. were among those who have said weather-related delays in red-hot markets would push home closings into later quarters.
Single-family starts slid 14.4 percent, the largest drop since January 1991 and starts on structures with five or more units fell 31.6 percent, the biggest drop since March 2000.
Permits for future groundbreaking, an indicator of builder confidence, also fell more than expected but remained at a level economists said showed some fundamental strength.
David Seiders, chief economist at the National Association of Home Builders, said the plunge in starts most likely represented just a pause after a couple strong months.
"We'll probably see better numbers in April," he said. "It's not time to panic over here for sure."
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