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US production prices rose slight 0.2 percent in January

WASHINGTON -- The cost of producing goods and services in the United States rose slightly in January, with higher food prices partly offset by cheaper gas. Overall, inflation remains mild.

The Labor Department said Wednesday that the producer price index, which tracks prices before they reach consumers, rose 0.2 percent in January. That followed a 0.1 percent increase in December and a flat reading in November. In the past year, producer prices have risen just 1.2 percent, below the Federal Reserve's preferred target rate.

Excluding the cost of food, energy and markups by wholesalers and retailers, so-called core prices ticked up just 0.1 percent.

January's producer prices are the first to be compiled since the government revamped its index to make it more comprehensive. Producer prices now include services and construction. Before last month, the index tracked only goods.

That change has doubled the producer price index's coverage to include 75 percent of the economy. It is the government's first revamp of the index in 35 years.

Inflation has declined in the past two years, posing a challenge for Fed policymakers. During 2013, the producer price index rose just 1.1 percent after rising 1.4 percent in 2012. Both figures are far below the Fed's 2 percent target.

Home Construction Down 16% in January

U.S. home construction fell in January for a second month but the weakness in both months reflected severe winter weather in many parts of the country. The expectation is that housing will deliver another year of solid gains, helped by an improving economy.

Builders started work at a seasonally adjusted annual rate of 880,000, down 16 percent from December, the Commerce Department reported Wednesday. In December, construction had fallen 4.8 percent. The declines in both months were blamed largely on the weather.

Applications for building permits fell in January for a third month, dropping 5.4 percent to a rate of 937,000.

For all of 2013, housing construction rose 17.7 percent to 976,000 units, the best showing since 2007. Analysts expect further gains this year as stronger job growth boosts demand.

For January, both single-family and apartment construction fell. Single-family building dropped 15.9 percent to a rate of 573,000 while apartment construction was down 16.3 percent to 307,000.

By region of the country, construction shot up 61.9 percent in the Northeast after two months of declines but was down in every other region of the country. Construction fell 67.7 percent in the Midwest to a record low of 50,000 units at an annual rate. The records go back to 1960. That big decline likely reflected the impact of severe weather in the Midwest in January. Construction was down 12.5 percent in the South and 17.4 percent in the West.

The expectation is that housing will keep improving this year, helped by further gains in employment and relatively low mortgage rates. Rates hit record lows in early 2013 but then they started rising as the Federal Reserve sent signals that it might begin to curtail its monthly bond purchases.

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