NEW YORK (CNNfn) - The government reported Thursday that U.S. producer prices and retail sales grew in March, at a rate far exceeding analysts' expectations. However, the core producer price rate - which is closely watched by Fed officials and inflation-leery investors -- showed relatively moderate growth.|
The Producer Price Index, which measures the price of U.S. goods at the wholesale level, jumped 1 percent last month, driven primarily by a strong surge in energy prices, the Labor Department said. The increase mimicked a similar increase in the index for February and far exceeded the 0.5 percent increase expected by analysts in a Briefing.com poll.
However, the core rate -- which excludes volatile food and energy prices -- rose a much more moderate 0.1 percent, in line with expectations, suggesting that economic inflation remains largely in check.
Analysts said the report signals to investors -- still wary after the Federal Reserve hiked interest rates five times since last June -- that the U.S. economy continues to grow at a rapid clip without any apparent signs of inflation.
"It means we sort of dodged another bullet on the inflation front," said Robert Brusca, chief economist at Ecobest Consulting. "These kinds of numbers put the Federal Reserve in a difficult box. We don't have inflation, the economy is growing too fast, they are afraid it won't keep up, but it's hard for them to raise rates without any inflation on the doorstep."
Still, economists largely anticipate that the Federal Reserve will hike short-term interest rates by a quarter-point when it meets next month to ponder U.S. economic and inflation growth. Brusca said the Fed is still has no choice but to use its interest rate powers to head off what it likely still views as an overheated economy. (408K WAV) (408K AIF)
There were rumblings Wednesday of a possible half-point increase after Federal Reserve Governor Laurence Meyer hinted that if the apparent imbalances in the U.S. economy should become even more glaring, the central bank would begin lifting short-term rates more aggressively. But those fears were essentially assuaged by the core rate's moderate showing, economists said.
"While core finished goods are still relatively tame, there are signs that price increases are accelerating further back in the production pipeline," said Mark Vitner, chief economist with First Union Corp. "Typically the Fed continues tightening until this series tops out. But with prices up only modestly, they will likely continue to make only modest adjustments."
Indeed, U.S. markets -- hit hard by a steep technology sell-off and heightened concerns over larger-than-expected increases in interest rates -- took no solace in the reports. By late morning, the Dow Jones industrial average was off 108.35 points while the Nasdaq waded into positive territory, climbing 43.10 points.
In testimony before the Senate Banking, Housing and Urban Affairs Committee Thursday morning, Alan Greenspan declined to comment on the recent market volatility, but said had the Fed not followed through on raising interest rates, it would have led to excess liquidity in the economy, "which is where the inflation concern comes from."
Finished energy prices surge
The PPI index was driven by a 5.8 percent jump in energy prices during March, which included the largest monthly jump for gasoline prices since 1990. Gasoline prices at the retail level rose 14.9 percent during the month.
However, prices for crude energy goods, or energy products still at the production level, slowed markedly during March, although they still increased by 1.2 percent. Prices for natural gasoline actual declined while crude petroleum prices slowed considerably.
Prices for consumer foods rose a more modest 0.1 percent during March, a decrease from the 0.4 percent growth the month before.
Overall, the finished goods price index moved up at a seasonally adjusted annual rate of 8.2 percent during the first three months of the year, the first three-month increase since November 1990.
Retail sales slow
Separately, the Commerce Department reported that retail sales grew 0.4 percent during March. While that figure was down considerably from the revised 1.8 percent increase posted the month before, it still exceeded the 0.2 percent increase analysts polled by Briefinig.com expected.
Excluding automobiles, retail sales rose 1.4 percent during March, a much higher increase than the 0.8 percent analysts expected, as automobile sales fell 2.6 percent.
Given that decline and the fact that Easter sales, which normally have some bearing on March sales, were still largely unaccounted for, analysts said the jump in retail sales was particularly stunning.
"Clearly there is nothing here at all to comfort the Fed," said Ian Shepherdson, chief U.S. economist with High Frequency Economics.
Retail sales are a significant indicator for Wall Street because consumer spending accounts for more than two-thirds of U.S. economic output, and has played a significant role in driving the current economic expansion.
John Ryding, senior economist with Bear Stearns, said the gain in real consumer spending in the first quarter was likely the strongest in the last 14 years and suggests that real GDP growth in the first quarter exceeded 5 percent.
"The consumer still has life," Brusca said. "It does temper the overall gain, but we're still going to see the consumer spending this quarter."
In a separate report, the U.S. Labor Department also said the number of Americans filing new claims for unemployment benefits rose to 264,000 for the week ended April 8 from a revised 261,000 the week before.