Producer prices record biggest gain in 32 years

Wholesale prices climbed 2% last month, their largest gain in more than three decades, as energy and vehicle costs jumped, the federal government announced Tuesday.

Meanwhile, housing starts increased 6.7% in November after a sharp decline in October. But permits for future construction, an indicator of builder confidence, fell 3%, the Commerce Department said.

The producer price index’s increase in November matched a rise recorded in November 1974, the Labor Department said.

At the same time, core producer prices -- which exclude volatile food and energy costs -- climbed 1.3%, their biggest gain since July 1980, as car and light-truck prices bounced back from an October drop.

However, stripping out vehicle prices, core producer prices were up just 0.2%, and analysts said the report did not signal a sudden resurgence of inflationary pressures.

Core producer prices increased an average of 0.2% a month in October and November, said Michael Gregory, senior economist at BMO Capital Markets in Toronto.

“As such, there is nothing alarming in the underlying trend,” he said.

Analysts took the wholesale price data with a grain of salt, noting that a report Friday showed that consumer prices were flat in November. In addition, over the last year, producer prices were up only 0.9%, while core producer prices were up 1.8%.

“I don’t think it changes the outlook. I don’t think this one figure changes the Fed’s stance,” said Michael Metz, chief investment strategist at Oppenheimer & Co. of New York.

At its policy meeting last week, the Federal Reserve held benchmark U.S. borrowing costs steady at 5.25% for a fourth straight meeting, while reiterating that inflation -- not weak growth -- remained its main concern.

“I still think they are on hold indefinitely,” Metz said.

Inflation appears to have reached stasis, Dallas Federal Reserve Bank President Richard Fisher said in a speech Tuesday afternoon, but “the stasis is at too high a level.”

“The risk of unacceptably high inflation still outweighs the risk of substandard economic growth,” he said.

Although the rise in housing starts beat economists’ expectations, permits to build new homes fell to their lowest rate in nearly nine years.

November housing starts came in at an annual pace of 1.588 million units, up from 1.488 million units in October. Economists had forecast November housing starts to climb to 1.53 million units from October’s originally reported pace of 1.486 million units.

Still, housing starts were down 25.5% from the November 2005 pace of 2.131 million units.

Permits for future groundbreaking fell 3% to an annual pace of 1.506 million units, the lowest since December 1997, from a 1.553 million pace in October. Economists had expected the Commerce Department to report November permits at a 1.540-million pace.

Permits were down 31.3% from November 2005.