Economic Report: Higher U.S. gas prices boost wholesale inflation

Higher gas prices toward the end of summer pushed up wholesale inflation, but price increases for most goods and services remained mild.

WASHINGTON (MarketWatch) — U.S. inflation at the wholesale level rebounded toward the end of summer, but most of the increase reflected higher gasoline prices.

The producer price index rose 0.2% last month, the government said Wednesday. Economists surveyed by MarketWatch had forecast a 0.3% increase in wholesale inflation after a small decline in July.

A nearly 10% jump in the cost of gas accounted for most of the increase in wholesale inflation last month. Wholesale food costs, on the other hand, posted the biggest decline in more than two years.

The latest snapshot on wholesale prices, however, indicated that inflation is still muted. Aside from fuel, prices of most other goods and services were little changed. And inflation further down the pipeline — as reflected by raw and partly finished goods — have eased off recent multi-year highs.

Absent clear signs of rising inflation, the Federal Reserve can afford to be patient before raising interest rates again. Most analysts don’t think the central bank will increase the cost of borrowing again at least until the end of the year.

Still, the Fed will have to pay close attention to the effect of gas on overall inflation. The price of fuel could remain elevated for awhile after all the damage caused to refining operations in the Houston area after Hurricane Harvey.

What’s more, Hurricane Irma caused widespread fuel shortages in Florida that could keep pressure on fuel costs nationwide as supplies are rushed to the state.

The increase in prices in August pushed the 12-month rate of wholesale inflation to 2.4% from 1.9%, just a tick below a five-year high.

The yearly change in the so-called core rate of inflation, however, was unchanged at 1.9%. The closely followed core rate strips out the volatile categories of energy, food and trade and is viewed as a more stable barometer of inflationary trends.

In August, the core rate rose 0.2%.

U.S. stock futures pointed to a flat opening for the Dow Jones Industrial Average DJIA, -0.03% Treasury yields were lower.

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