US producer prices advanced sharply last month on a jump in energy costs that could spell more problems for the economy, although a gauge of New York regional factory conditions was stronger than expected.
Prices received by US farms, factories and refineries rose 1.1 percent in March, almost twice the pace economists had estimated and the largest gain since November, Labour Department data showed on Tuesday. But core prices, which strip out food and energy costs, showed a more-subdued 0.2 percent rise.
"The report will remove expectations that the Fed will cut 50 basis points at the next meeting," said Ron Simpson at Action Economics in Tampa, Florida, referring to the possibility of a large half-percentage point reduction in benchmark borrowing costs.
The US central bank has slashed interest rates by 3 percentage points since mid-September to shield the economy from the effects of a housing crisis that has chilled growth and led to turmoil in financial markets worldwide.
Its next meeting is April 29-30. Prices of interest rate futures fully imply another quarter-point cut in rates but with a reduced likelihood of a sharper reduction, reflecting inflation worries and other mixed economic data.
The New York Federal Reserve Bank's "Empire State" business conditions index - a gauge of regional factory activity that offers one of the freshest readings on US manufacturing - rose to plus 0.63 in April from minus 22.23 in March. Economists had expected it to edge up to only minus 17.5.
Fed policy-makers must balance the fallout from the housing downturn on growth with their duty to keep inflation at bay. Economists had forecast producer prices - largely a gauge of prices at the wholesale level - would rise 0.6 percent last month after a 0.3 percent gain in February. Energy prices were up 2.9 percent and food goods gained 1.2 percent.
On a year-on-year basis, producer prices rose 6.9 percent, while core prices increased by 2.7 percent - the largest 12-month gain since July 2005. Energy prices have risen 20.4 percent over the past year, with gasoline up 36.4 percent and heating oil up 52 percent. Crude oil prices were near a record $113 a barrel on Tuesday.
During the first quarter of 2008, producer prices rose 10.2 percent on an annual basis, moderating slightly from the 11.5 percent pace of the previous three months after gains in energy prices slackened a touch, the Labour Department said.