WASHINGTON -- The Labor Department reported yesterday that wholesale prices stayed flat in November, providing fresh evidence that inflationary pressures are hard to find.
The flat reading in the government's producer price index reflected tumbling energy prices, which have continued to weaken this month with the collapse of crude oil prices.
Excluding volatile food and energy prices, the core PPI rose 0.4%, which initially unsettled the bond market because it was higher than expected.
However, analysts dismissed the jump in the core rate because it stemmed largely from a 2.1% increase in prices of new cars after decreases the two preceding months.
"Over the last three months, auto prices are still down, so the one-month blip really needs to be taken in context," said Douglas Schindewolf, money market economist for Smith Barney Shearson.
The Labor Department has difficulty making seasonal adjustments to car prices late in the year when dealers introduce new models, Schindewolf said.
Analysts agreed that the inflation front remains calm and that prices overall may end up rising slightly less than last year, given the drop in oil prices. The November index for finished energy goods fell 2.7%, led by a steep downturn of 5.8% in gasoline prices.
Falling oil prices are expected to show up again in today's consumer price report, a broader measure of inflation that tracks retail prices paid by consumers for goods and services. Analysts surveyed by Technical Data called for a gain of 0.2% in the CPI, and an uptick of only 0.1% in the core rate.
Producer prices increases have been slowing over the last two years on a year-over-year basis, which smooths out monthly fluctuathas ions in the data. Compared to a year earlier. November prices were up only 0.3%.
"I don't see a pervasive increase in inflation here," said Kathryn Kobe, an economist with Joel Popkin & Co. "I don't think the Federal Reserve is going to take this 0.4% increases in the core rate and overreact to it."
David Resler, chief economist for Nomura Securities International, Inc., called the producer price figures "benign." Moreover, "inflation is not an issue right now in the real world. It is exactly the environment the Fed has said it has been seeking for years, a world in which inflation doesn't enter into decision-making, except in financial markets."
Still, given recent evidence that the economy is growing stronger, many bond market participants expect Fed officials to begin tightening monetary policy some time next year to prevent an upturn in inflation. Resler said he believes the central bank may move as early as January, before revised Labor Department figures show an increase in the unemployment rate and before Congress reconvenes.