Producer Prices Steady in December

Discounts from carmakers held down U.S. wholesale inflation in December and made auto sales one of the few bright spots in an economy that limped into the new year, reports released Wednesday showed.

The producer price index, a measure of prices received at the farm and factory gate, unexpectedly held steady in December as a big drop in vehicle costs offset rising food and energy prices, the Labor Department said.

While the overall index was unchanged, the core rate, which excludes volatile food and energy costs, fell 0.3%, largely because of the slide in car prices.

“This number points to very modest inflation, probably not deflation, however, even though some people in the market are still concerned about that,” said Patrick Fearon, an economist at A.G. Edwards in St. Louis.

A separate report from the Federal Reserve underscored the profit-squeeze threat that a lack of pricing power presents.

“Despite rising costs for energy and other inputs, upward movement in the prices of final goods and services was quite limited,” the Fed said in its anecdotal beige book report. “Final prices were held down by competitive supply conditions.”

The report, covering mid-November into early January, said consumer spending was weak, outside a year-end surge in auto sales that reflected incentives.

“Most districts characterized growth as ‘sluggish,’ or economic activity as ‘soft’ or ‘subdued,’ ” the Fed said in the report, which pulls together anecdotal information on the economy from each of its 12 regional banks.

The soft reading on producer prices surprised economists on Wall Street, who expected a rise of 0.3% overall and 0.1% without food and energy costs. December’s unchanged reading followed a drop of 0.4% in November; the core rate’s 0.3% drop mirrored the fall in November.

A separate report from the Commerce Department showed inventories of autos increased 1.7% in November after a 2.8% October advance.

Overall inventories at retailers, manufacturers and wholesalers rose 0.2% in November, a seventh consecutive monthly increase, despite a 0.3% sales gain.