U.S. inflation at the wholesale level rose more than expected in January on the back of higher energy costs, but price increases in other sectors of the economy remained contained, leaving scope for the Federal Reserve to leave interest rates at a record low.
A separate government report showed the number of U.S. workers filing new claims for jobless benefits jumped much higher than economists expected last week in yet another reminder of the sluggish pace of the U.S. labor market recovery. Total claims lasting more than one week, meanwhile, held steady.
The producer price index for finished goods rose a seasonally adjusted 1.4% on the month in Janaury, the Labor Department said Thursday, after increasing an upwardly revised 0.4% in December. The December increase was previously estimated at 0.2%
However, the core PPI, which excludes volatile energy and food prices, rose 0.3% last month after remaining flat in December.
Wall Street economists polled by Dow Jones Newswires were expecting wholesale prices to rise 0.9% on the month in January. Core producer prices were seen rising 0.1%.
With the U.S. economy's recovery more firmly in place, investors are starting to pay more attention to readings on inflation. Outside of volatile energy and food prices, there have been few signs that inflation is heating up, giving the Fed continued reason to keep short-term interest rates near zero.
For the 12 months ended January 2010, the unadjusted producer price index rose by 4.6%, the largest annual increase since October 2008.
On a monthly basis, which is adjusted for seasonality, energy prices rose by 5.1% in January after a 0.7% increase the previous month. About two-thirds of the increase can be attributed to an 11.5% jump in gasoline prices.
Food prices rose by 0.4, moderating from a 1.3% monthly rise in December. A 3% rise in meat prices was a major factor behind the increase.
Still, the latest figures should not cause too much concern for the U.S. central bank, which focuses on core readings of inflation that strip out food and energy prices. Last month, the Fed repeated a pledge to keep rates close to zero for at least several more months due to low inflation and high unemployment.
Fed officials expect the widely watched consumer price inflation index to stay between 1.3% and 1.6% this year, minutes of their latest meeting at the end of January showed Wednesday. Core inflation is seen at an even lower 1.0% to 1.5% range by the central bank.
Thursday's producer price report showed prices of raw materials, known as crude goods, advanced 9.6% on the month in January, the largest increase since November 2006. Intermediate goods prices were up by 1.7%, the biggest gain since the same increase in August 2009.
The Fed will get more readings on inflation when the government releases the more closely watched January consumer prices on Friday.
Economists surveyed by Dow Jones Newswires don't expect any sign that inflation is accelerating, outside of volatile energy prices. The consumer-price index is projected to have increased a monthly 0.3% in January, and the core CPI is seen up only 0.1%.
Also, initial claims for jobless benefits rose by 31,000 to 473,000 in the week ended Feb. 13, according to the Labor Department's weekly report Thursday. The previous week's level was revised upward to 442,000 from 440,000. Economists surveyed by Dow Jones Newswires expected initial claims to increase only by 5,000.
The four-week moving average, which aims to smooth volatility in the data, fell for the week ending Feb. 13. The Labor Department said the four-week moving average declined by 1,500 to 467,500 from the previous week's revised average of 469,000.
Thursday's claims report reflects the data collected during the week that blizzards dumped record amounts of snow on some East Coast cities and forced the U.S. government to shut down for several days.
Economists said that while they expected the weather to have some kind of effect on claims, the snow will likely have a much greater impact on the Labor Department's February jobs report slated to be released in early March.
Although the storms may have made it hard for people to file claims or shut down claims offices in some states, workers are still often able to file their forms electronically. In addition, some experts questioned whether people who were unable to work for a few days during the storms would bother to file for unemployment benefits.
A Labor Department economist said Thursday the U.S. government did not receive many comments from the states about this latest data set due to the President's Day holiday, which fell on the day that many states submit claims data. He added that the Department of Labor had to estimate data for Alabama, Hawaii and Texas because those states did not submit data. California, meanwhile, submitted an estimated figure. Despite figures showing the U.S. economy is now growing again, the labor market has yet to show strong signs of improvement.
In response to the growing discontent among workers unable to find new jobs, both the Obama administration and Congress have pushed the issue to the top of their political agenda. Before the President's Day recess, U.S. senators unveiled dueling bills both aimed at bolstering job growth. A procedural vote on one of the proposals pushed by Senate Majority Leader Harry Reid could occur as early as Feb. 23 after the Senate returns from its recess.
In the Labor Department's Thursday report, the number of continuing claims -- those drawn by workers for more than one week in the week ended Feb. 6 -- remained unchanged at 4,563,000 from the preceding week's revised level of 4,563,000.
The unemployment rate for workers with unemployment insurance for the week ended Feb. 6 was 3.5% -- also unchanged from the prior week's unrevised rate of 3.5%.
The largest increase in initial claims for the week ended Feb. 6 was in Iowa due to layoffs in the manufacturing industry. The largest decrease in initial claims occurred in California.
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