Falling Energy Prices Lead To Steep Drop By U.S. Producer Prices

(RTTNews) - Reflecting another substantial decrease in energy prices, the Labor Department released a report on Wednesday showing that U.S. producer prices fell by much more than expected in the month of January.

The Labor Department said its producer price index for final demand slumped by 0.8 percent in January after edging down by 0.2 percent in each of the two previous months. The index had been expected to drop by 0.4 percent.

The steep drop in producer prices reflected the biggest monthly decrease since the final demand series began in November of 2009.

Energy prices led the way lower once again, plunging by 10.3 percent in January after tumbling by 6.2 percent in December. Prices for gasoline showed a particularly steep drop, plummeting by 24.0 percent.

The report also showed a notable decrease in food prices, which fell by 1.1 percent in January after edging down by 0.1 percent in the previous month.

Excluding food and energy prices, the core producer price index dipped by 0.1 percent in January after rising by 0.3 percent in December. Core prices had been expected to inch up by 0.1 percent.

The unexpected drop in core prices was partly due to a 0.2 percent decrease in prices for final demand services, which included a 0.8 percent drop in prices for transportation and warehousing services.

Paul Ashworth, Chief U.S. Economist at Capital Economics, said the drop in core prices partly reflected the indirect impact of lower energy prices, with the decrease in prices for transportation and warehousing services reflecting lower air fares and other public transportation costs.

"Otherwise, the biggest contribution to the decline in the core came from a 0.7% m/m drop in outpatient care prices," Ashworth said.

With the steep monthly decline, the Labor Department noted that producer prices in January were unchanged compared to the same month a year ago. Prices were up by 1.1 percent year-over-year in December.

The report said the annual rate of core producer price growth also slowed to 1.6 percent in January from 2.1 percent in December.