U.S. Producer Prices Rise 0.4% Amid Higher Energy, Tobacco Prices

(RTTNews) - Producer prices rose in line with economist estimates in the month of December, according to a report released by the Labor Department on Wednesday, with higher prices for energy and tobacco products offsetting a drop in food prices.

The Labor Department said its producer price index rose by 0.4 percent in December after edging down by 0.1 percent in November. The increase by the index matched economist estimates.

The increase in producer prices was partly due to a rebound in energy prices, which surged up by 1.6 percent in December after falling 0.4 percent in November and tumbling 1.5 percent in October.

A 2.2 percent jump in gasoline prices contributed to the rebound along with higher prices for diesel fuel and home heating oil.

On the other hand, the report said food prices fell by 0.6 percent in December after coming in unchanged in the previous month.

The Labor Department said the drop in food prices was led by prices for fresh and dry vegetables, which plunged by 13.4 percent.

Excluding food and energy prices, the core producer price index increased by 0.3 percent in December after inching up by 0.1 percent in the previous month. Economists had expected core prices to tick up by another 0.1 percent.

The bigger than expected increase in core producer prices reflected the largest advance since a 0.5 percent increase in July of 2012.

Nearly half of the increase in core prices was due to a jump in prices for tobacco products, which surged up by 3.6 percent amid state and local government tax hikes.

The Labor Department said higher prices for motor vehicles also contributed to the increase by the core producer price index.

Compared to the same month a year ago, producer prices were up by 1.2 percent in December, reflecting an acceleration from the 0.7 percent annual growth seen in the previous month.

Core producer prices increased at an annual rate of 1.4 percent in December compared to the 1.3 percent year-over-year growth seen in November.

Despite the faster annual growth rates, Paul Dales, Senior U.S. Economist at Capital Economics, said pipeline price pressures are still subdued.

"With the full effects of the recent fall in import price inflation yet to be felt, core PPI inflation could ease back a bit in the very near-term," Dales added.

Thursday morning, the Labor Department is scheduled to release a separate report on consumer price inflation in the month of December. Economists expect consumer prices to increase by 0.3 percent, while core prices are expected to tick up by 0.1 percent.