U.S. producer prices rose more than expected in December as energy and food costs surged while underlying inflation remained subdued, highlighting a divergence that complicates the outlook for monetary policy.
Prices at the wholesale level climbed 1.1 percent after a 0.8 percent rise in November, the Labor Department said on Thursday. Economists had been looking for a repeat of that 0.8 percent advance in December.
Inflation excluding food and energy, however, rose just 0.2 percent, in line with forecasts. That left the year-on-year gain in core producer prices at 1.3 percent, just below analyst estimates.
Among the biggest gainers were home heating oil, which jumped 12.3 percent, and fresh and dry vegetables, which surged 22.8 percent. Fresh fruits and melons rose sharply for a second straight month, posting a 15.4 percent gain.
A recent spike in global food costs has raised fears of a crisis the poorer corners of the developing world.
The split between weak underlying inflation and high food and energy prices makes it harder for Federal Reserve officials to argue publicly that inflation is not a threat. A fear of inflation being too low has underpinned the Fed’s efforts to support the economy by purchasing government bonds.
Wait. The same economists were calling for deflation 5 months ago. Wha happened?