Inflation Returns: Producer Prices Increased More Than Expected in July

Wholesale costs in the U.S. rose in July at their fastest rate in six months, pushed up by higher tobacco prices, light truck costs, and pharmaceuticals (NYSE:XLV).

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The Producer Price Index advanced 0.2% in July, following a 0.4% decline in June, according to the Labor Department’s report Wednesday. The core measure, which excludes volatile food (NYSE:RJA) and energy (NYSE:XLE), increased 0.4% in July, the highest rate of increase since January. Economists had forecast that the seasonally adjusted index for prices paid at the farm and factory would advance 0.1% in July, according to a median estimate of forecasts ranging from a 0.5% decline to a 0.6% increase.

According to the report, the cost of crude goods dropped in July for the third straight month, down 1.2%, with petroleum and food (NYSE:RJA) prices also declining off highs. Tobacco accounted for almost one fourth of the rise in the core PPI rate, climbing 2.8%, while light truck prices increase 1%, pharmaceuticals (NYSE:XLV) climbed 0.4%, and food costs rose 0.6%, in large part due to potato prices, which made their biggest advance in almost a year. Fuel (NYSE:UGA) costs fell 0.6%, led by gasoline prices, which rose 2.8%.

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In the last twelve months, the PPI has risen 7.2%, which means that, when compared to July 2010, companies spent 7.2% more on goods last month. Core wholesale prices, which exclude volatile food and energy costs, were projected to rise 0.2% rather than the 0.4% they gained, and have now climbed 2.5% in the last twelve months, the biggest year-over-year increase since June 2009.

Producer prices are one of three monthly inflation gauges reported by the Labor Department — the other two are prices of goods imported to the U.S., which rose 0.3% in July according to a data release yesterday, and consumer prices, which rose 0.2% in July.