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WASHINGTON (Reuters) – Producer prices outside food and energy recorded their largest increase in six months in January, but are unlikely to ignite inflation pressures given the slack in the labor market.

The Labor Department said on Thursday its seasonally adjusted core producer price index rose 0.4 percent last month, the largest gain since July, after increasing 0.3 percent in December.

Economists polled by Reuters had expected core PPI to rise only 0.2 percent. In the 12 months to January, core producer prices rose 3.0 after increasing 2.7 percent in December.

But overall prices received by farms, factories and refineries edged up 0.1 percent after dipping 0.1 percent in December.

The rise, which was smaller economists’ expectations for a 0.4 percent gain, reflected declines in food and energy prices.

In the 12 months to January, producer prices increased 4.1 percent, moderating from 4.8 percent December. That was the smallest increase in a year.

The Federal Reserve last month viewed inflation as largely contained and said it expected to hold interest rates near zero at least through late 2014.

But a surprisingly strong run of economic data – from job growth to manufacturing – is raising questions about whether the U.S. central bank can hold off on tightening monetary policy that long.

Wholesale prices outside of food and energy were pushed up by a drugs costs, which accounted for about 40 percent of the increase. Higher prices for light motor trucks and household appliances also contributed.

Passenger car prices fell 0.8 percent after rising 0.5 percent in December.

(Reporting by Lucia Mutikani; Editing by Neil Stempleman)

NEW YORK (Reuters) – The pace of factory activity in the U.S. Mid-Atlantic region gained momentum in February as new orders picked up, a survey showed on Thursday.

The Philadelphia Federal Reserve Bank said its business activity index rose to 10.2 from 7.3 the month before, topping economists’ expectations for 9.5, according to a Reuters poll.

Any reading above zero indicates expansion in the region’s manufacturing. The survey covers factories in eastern Pennsylvania, southern New Jersey and Delaware.

It is seen as one of the first monthly indicators of the health of U.S. manufacturing leading up to the national report by the Institute for Supply Management.

It was the latest in a string of stronger-than-expected economic data, including a surprise drop in new claims for unemployment benefits earlier on Thursday.

“Metric after metric, uniformly, is doing better, and barring any unforeseen problems from Europe it appears we’re in a self-sustaining cycle of growth,” said Jim Awad, managing director at Zephyr Management in New York.

“We’re better than where we were but not as good as we’d hope.”

New orders gained to 11.7 from 6.90, while shipments accelerated to 15.0 from 5.7. Prices paid crept up to 38.7 from 31.8.

Measures of employment were mixed. The gauge of the number of employees dropped off to its lowest level since August at 1.1 from 11.60, while the average employee work week jumped to 10.1 from 5.0.

Survey respondents’ view on the coming months was less robust with the gauge of business conditions for the next six months falling to 33.3 from 49.0.

The release was overshadowed in financial markets by the jobs data earlier and as Greece was working to secure a needed bailout.

(Reporting By Leah Schnurr, additional reporting by Ryan Vlastelica; Editing by Chizu Nomiyama)

WASHINGTON (Reuters) – Gasoline prices jumped in January, leading overall consumer prices higher and offering a reminder of the risks energy costs pose to the economic recovery.

Despite the warning signal, overall consumer prices rose just 0.2 percent, the Labor Department said on Friday, which is unlikely to ring alarm bells at the Federal Reserve.

Strong jobs and factory data have eased worries U.S. economic growth could slow sharply, but tensions between Western nations and Iran still threaten to hand the economy a repeat of 2011 when a spike in energy prices hit the recovery hard.

“The greatest concern is that geopolitical strains in the Middle East will spill over into the oil market, pushing prices higher in a replay of last year’s oil price spike,” economists at Bank of America said in a note to clients.

For the Fed, an energy prices spike would represent a quandary: it could hurt the economy even as it boosts inflation. Gasoline prices increased 0.9 percent in January and they have continued to move higher this month.

“Consumers are going to feel a gasoline pinch in the first half of this year,” said Chris Christopher, an economist at IHS Global Insight.

The report also showed so-called core prices, which strip out food and energy costs, rose 0.2 percent. That pushed the increase over the last 12 months up to 2.3 percent, the fastest pace since September 2008.

While the year-on-year reading on overall prices has been easing, the steady pick-up in core suggests inflation pressures are not subsiding as quickly as expected, and it could lead to some wariness at the Fed about launching another round of bond purchases to drive borrowing costs lower.

“At the margin it does lean against the case for more (bond purchases),” said JPMorgan economist Michael Feroli.

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Graphic on January U.S. CPI: link.reuters.com/xyr66s

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U.S. stocks hovered near recent highs, with investors wary of making big bets heading into a holiday weekend when hopes are set for Greece’s bailout plan to be approved. Treasury debt prices fell and the dollar was flat against a basket of currencies.

A separate report by the private Conference Board showed a gauge of future U.S. economic activity rose to a 3-1/2 year high in January on solid gains in manufacturing.

Last month, Fed Chairman Ben Bernanke left the door open to further Fed bond buying to boost growth, but a steady stream of upbeat data in recent weeks has led analysts to dial down their expectations for a further easing of monetary policy.

In January, used car and truck prices fell 1.0 percent and new vehicle prices were flat, moderating the overall gain in core prices. Policymakers watch core prices closely because they see them as a better guide to inflation trends.

Food also played a role in the overall increase in prices. Food costs rose 0.2 percent in January and were up 4.4 percent year-on-year.

Worldwide, food prices rose in January for the first time in six months and HJ Heinz Co and Campbell Soup Co said on Friday that higher commodity costs have hurt sales volume.

Despite the spike in U.S. gasoline prices last month, overall energy prices rose just 0.2 percent because electricity prices were flat and costs to consumers for piped natural gas services fell 2.9 percent.

Even so, gasoline prices remain a threat to the economy, with oil hovering near $ 120 a barrel on Friday. Iran, which Western nations accuse of seeking to develop nuclear weapons, is facing sanctions that could cripple its oil exports.

After rising throughout January, the national price for regular unleaded gasoline in the United States rose to $ 3.58 a gallon in the week through Monday, according to the Energy Information Administration. It had started the year around $ 3.32 a gallon.

(Editing by Andrea Ricci)

NEW YORK (Reuters) – U.S. primary dealers on average saw the highest probability of the first U.S. interest rate increase in the first half of 2014, according to a January survey conducted by the New York Federal Reserve that was released on Thursday.

Dealers placed almost as high a probability for the first interest rate increase in the second half of 2014, while the probability for such a rate increase before or after 2014 tapered off, according to the survey.

Primary dealers saw the second quarter of 2014 as the median for the first rate increase since the central bank cut rates to near zero in December 2008, according to the survey.

The dealers expected 8.7 percent median U.S. unemployment for 2011, based on a fourth quarter to fourth quarter measure, then 8.5 percent for 2012 and 8.1 percent for 2013, according to the survey.

The government said earlier this month the unemployment rate in January was 8.3 percent.

The survey was conducted before the Fed’s January 24-25 policy meeting. At the close of its January meeting, the Fed said it would likely keep interest rates at rock-bottom levels until at least late 2014. Fed Chairman Ben Bernanke after the meeting expressed caution about recent improvements in the economy and left the door open to further Fed bond buying to boost growth.

There are 21 primary dealers, which are the large financial institutions that do business directly with the Fed to help carry out monetary policy and distribute U.S. debt.

The January survey is only the second survey the Fed has made public as part of an effort to increase its transparency. However, the Fed withholds details as to the specific number of dealers who responded in any particular way to each question.

The survey results are made public a day after Federal Open Market Committee meeting minutes are released.

(Reporting by Chris Reese; Editing by James Dalgleish)

U.S. Federal Reserve Chairman Ben Bernanke testifies before a Senate Budget Committee hearing on the outlook for the U.S. Monetary and Fiscal Policy on Capitol Hill in Washington, February 7, 2012.

Credit: Reuters/Jason Reed