Wholesale prices rose more sharply in July than expected and at a faster rate than consumer prices, the government reported yesterday, indicating that businesses were still shielding consumers from the full brunt of higher energy costs.
The Producer Price Index, which measures what producers receive for goods and services, rose 1 percent in July, the Labor Department reported, double what economists had been expecting and a sharp turnaround from flat prices in June.
Excluding food and energy, the core index of producer prices rose 0.4 percent, higher than the 0.1 percent that economists had forecast. Much of that increase was a result of an unexpected increase in car and truck prices.
The Labor Department said Tuesday that the prices that consumers paid for goods and services in July were up 0.5 percent over all, and up 0.1 percent excluding food and energy.
Most of the overall rise in both consumer and producer prices was caused by energy costs, which increased 4.4 percent in the month. Wholesale food prices fell 0.3 percent in July. Compared with July 2004, wholesale prices were up 4.6 percent; the core rate climbed 2.8 percent, its fastest pace since 1995.
Typically, increases in the Producer Price Index portend similar changes in the consumer index as businesses recoup higher costs from customers. But for much of this expansion, which started at the end of 2001, that has not been the case. In fact, many businesses like automakers have been aggressively discounting their products.
Economists are pondering how long businesses will be able to keep themselves from passing on higher energy costs to their consumers.
"It's mighty difficult the closer you get to the consumer to raise prices, and that remains the case," said Joshua Shapiro, the chief United States economist at the consulting firm MFR. "There is a big debate out there as to how long can this continue."
Shapiro said that businesses have been unable to raise prices because of competitive pressures both domestically and overseas. Profits at many companies are starting to suffer as a result.
For example, Wal-Mart Stores, which prides itself on being the home of "every day low prices," reported its smallest quarterly profit growth in four years on Tuesday, blaming the rising toll that energy was taking on its expenses and its customers' ability to buy.
Economists noted that the Producer Price Index might be overstated this month because it shows wholesale prices for cars and light trucks rose 1.5 percent and 1.4 percent in July. Those increases are in stark contrast to the sharp discounts being offered by Detroit automakers since June.
Shapiro said the increases appeared to be a statistical anomaly created by the way that researchers adjust the price data for seasonal variations. Excluding autos and trucks, the core index rose just 0.2 percent, not 0.4 percent.
The report also showed big price increases for raw materials (up 6.7 percent) and goods in production (up 1 percent). Increases in crude oil and natural gas played the biggest part but the price of iron and other metals also rose.
Rising prices have been a growing concern of the Federal Reserve, which has been raising short-term interest rates to try to head off inflation and maintain moderate growth in the economy.
The benchmark federal funds rate on overnight bank loans is now at 3.5 percent, but economists expect it will be raised to 4.25 percent by the end of the year.