By Brai Odion-Esene

MNI WASHINGTON BUREAU – While U.S. wholesale prices fell last month, the
residual effect of the major drought seen over the summer is now showing up in
higher prices for beef products, pushing up food prices as a result.

The Bureau of Labor Statistics Thursday reported that the Producer price
index fell by 0.8% in November, as energy prices plunged 4.6%, led by lower gas
and heating oil, as crude prices fell.

Aside from that “there wasn’t really anything else that looked terribly
unusual or unsettling,” BLS Senior Analyst Scott Sager told MNI.

He did note that within the finished goods area there was “a fairly large
increase” of 1.3% in the price of finished foods. This was the largest jump
since February he said.

The increase in food prices was driven by beef and veal products, he said,
which moved up 8.2%. To a lesser extent, higher prices for vegetables and
poultry products also fed the increase.

The drought over the summer is part of the story behind this rise in beef
and veal prices, Sager said, as the drought caused feed prices to increase
dramatically.

“As a result of the higher feed prices, a number of ranchers culled their
herds in order to decrease their costs,” Sager said. “So now what we are seeing
are relatively small herd sizes so that’s impact the supply of beef products.”

Core PPI, excluding food and energy, was only up 0.1% which Sager
attributed to slightly higher movements for cars and trucks but slightly lower
for pharmaceuticals.

“We have some offsetting movement there, but none of the movements in the
components where really that significant,” he said.

The Consumer Price Index will be released Friday, and when asked how much
of Thursday’s data will feed into consumer prices, Sager said that will be tough
to predict.

“A lot of it may have to do with timing as well because we price on a
specific pricing date whereas CPI prices throughout the month,” he said.

Looking ahead to December’s report, Sager said that typically at the end of
the year the BLS does not expect to see anything unusual in PPI data.

“I haven’t heard of anything out there that would cause any type of unusual
movement, but it remains to be seen exactly what prices are going to be doing,”
he said.

–MNI Washington Bureau; tel: +1 202-371-2121; email: besene@mni-news.com

[TOPICS: MAUDS$,M$U$$$]