May 14 (Bloomberg) — Prices paid to U.S. producers probably rose in April as oil costs rebounded, economists said before a report today.

The projected 0.2 percent increase in wholesale prices would follow a 1.2 percent drop in March, according to the median estimate of 68 economists surveyed by Bloomberg News. Another report may show the number of people claiming jobless benefits climbed last week from a three-month low.

Signs that the worst of the recession is over may boost commodity costs further, alleviating concern over deflation, or an extended drop in prices that hurts the economy. Along with the trillions of dollars pumped into the banking system by the Federal Reserve, increases in raw materials may stoke inflation once an economic recovery takes hold.

“It’s impossible to see how deflation can persist given the amount of liquidity in the system,” said Maxwell Clarke, chief U.S. economist at 4Cast.com in New York. “With oil moving back up, the thought in people’s minds becomes that inflation could ultimately become a problem that outweighs deflation.”

The Labor Department’s producer-price report is due at 8:30 a.m. in Washington. Economists’ forecasts ranged from a decline of 0.6 percent to a 1 percent gain.

Labor may also report at the same time that initial jobless claims rose to 610,000 in the week ended May 9 from 601,000 a week earlier, according to economists surveyed. The increase in applications probably reflects the closing of all Chrysler LLC assembly plants starting May 4 for at least 30 days while the automaker reorganizes under bankruptcy.

Recession Easing

Smaller declines in manufacturing and an easing in the housing slump indicate the worst recession in at least 50 years may be starting to abate.

The economy will probably shrink at a 1.9 percent annual pace this quarter after contracting at an average 6.2 percent rate in the prior six months, according to economists surveyed this month.

DuPont Co., the third-biggest U.S. chemical maker, and Dr Pepper Snapple Group Inc., the beverage maker spun off by Cadbury Plc last year, are among companies able to charge more. Wilmington, Delaware-based DuPont raised prices 5 percent on average in the first quarter and said demand will improve because most customers have used up inventories and are increasing purchases.

“We expect sales in the second quarter to be flat to slightly up from the first quarter,” Chief Executive Officer Ellen Kullman said on a call with investors on April 21.

Price Increases

Plano, Texas-based Dr Pepper Snapple yesterday reported first-quarter profit that beat analysts’ estimates and raised its 2009 forecast after increasing prices and cutting expenses.

“Markets and consumer sentiment appear to be on the mend,” Chief Executive Officer Larry Young said during a conference call with analysts.

Still, a report yesterday showed consumers aren’t yet totally out of the woods. Retail sales fell 0.4 percent in April after a 1.3 percent decline in March, according to data from the Commerce Department.

Producer prices are one of three monthly inflation gauges reported by Labor. Prices of goods imported into the U.S. rose 1.6 percent in April as petroleum costs surged, the government said yesterday.

Labor figures tomorrow may show consumer prices were unchanged last month after declining 0.1 percent in March, economists forecast. Excluding energy and food, prices probably rose 0.1 percent.

For their part, Fed policy makers are still more focused on the threat that prices will fall.

“In light of increasing economic slack here and abroad, the Committee expects that inflation will remain subdued,” policy makers said after their April 29 meeting. Still, there remain “some risks that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term.”

                        Bloomberg Survey

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                               PPI     Core     Core  Initial
                                        PPI      PPI   Claims
                              MOM%     MOM%     YOY%   ,000’s
================================================================

Date of Release              05/14    05/14    05/14    05/14
Observation Period           April    April    April    9-May
----------------------------------------------------------------
Median                        0.2%     0.1%     3.4%      610
Average                       0.2%     0.1%     3.4%      610
High Forecast                 1.0%     0.2%     3.6%      650
Low Forecast                 -0.6%    -0.2%     3.3%      580
Number of Participants          68       65       18       38
Previous                     -1.2%     0.0%     3.8%      601
----------------------------------------------------------------
Action Economics              0.3%     0.1%     3.4%      620
AIG Investments               0.8%    -0.1%     ---      ---
Aletti Gestielle SGR          0.1%     0.1%     ---       612
Ameriprise Financial Inc      0.3%     0.2%     3.5%      585
Argus Research Corp.          0.3%     0.2%     ---      ---
Bank of Tokyo- Mitsubishi     0.7%     0.1%     ---       615
Bantleon Bank AG              0.3%     ---      ---      ---
Barclays Capital              0.3%     0.2%     3.6%      627
BBVA                          0.2%     0.1%     ---       615
BMO Capital Markets           0.6%     0.2%     3.5%      610
BNP Paribas                   0.0%     0.1%     3.5%      596
Briefing.com                  0.2%     0.0%     ---       580
Calyon                        0.1%     0.1%     ---      ---
ClearView Economics           0.3%     0.1%     ---      ---
Commerzbank AG                0.2%     0.1%     ---       610
Credit Suisse                 0.4%     0.2%     ---       590
Daiwa Securities America      0.0%     0.1%     ---      ---
Danske Bank                  -0.6%     0.2%     3.5%     ---
DekaBank                     -0.1%     0.0%     ---      ---
Desjardins Group             -0.2%     0.0%     ---       610
Deutsche Postbank AG          0.2%     0.1%     ---      ---
DZ Bank                       0.1%     0.2%     ---      ---
First Trust Advisors          0.2%     0.1%     ---       609
Fortis                        0.2%     0.0%     3.3%     ---
FTN Financial                 0.2%     0.0%     3.3%     ---
Goldman, Sachs & Co.          0.0%    -0.1%     ---      ---
Helaba                        0.1%     0.1%     ---       610
Herrmann Forecasting          0.3%     0.1%     3.5%      596
High Frequency Economics      0.5%     0.2%     ---       590
HSBC Markets                  0.1%     0.1%     ---       600
IDEAglobal                    0.1%     0.1%     3.4%      610
IHS Global Insight            0.0%     0.0%     ---      ---
Informa Global Markets        0.3%     0.1%     ---       610
ING Financial Markets         0.0%     0.1%     3.4%      620
Intesa-SanPaulo               0.0%     0.1%     ---      ---
J.P. Morgan Chase             0.1%     0.1%     3.4%      650
Janney Montgomery Scott L     0.3%     0.2%     3.5%     ---
Johnson Illington Advisor    -0.1%     0.1%     ---      ---
Landesbank Berlin            -0.1%    -0.2%     ---       610
Landesbank BW                 1.0%     ---      ---      ---
Lloyds TSB                    0.2%     0.0%     ---       595
Maria Fiorini Ramirez Inc     0.1%     0.0%     ---       615
Merrill Lynch                 1.0%     0.0%     ---       605
Mizuho Securities            -0.1%     0.0%     ---       589
Moody’s Economy.com           0.2%     0.1%     ---       611
Morgan Keegan & Co.           0.1%     0.2%     ---      ---
Morgan Stanley & Co.          0.1%     0.0%     ---      ---
Natixis                      -0.3%     0.1%     3.4%     ---
Newedge                       0.3%     0.1%     3.4%     ---
Nomura Securities Intl.       0.3%     0.2%     ---      ---
PNC Bank                      0.4%     0.2%     ---      ---
Raymond James                -0.1%     0.1%     ---       590
RBS Securities Inc.           0.6%     0.1%     ---       650
Ried, Thunberg & Co.          0.1%     0.0%     ---       625
Schneider Foreign Exchang     0.1%     0.2%     ---       626
Scotia Capital                0.0%     0.1%     ---       590
Societe Generale              0.0%     0.1%     ---      ---
Stone & McCarthy Research     0.1%     0.1%     ---       615
TD Securities                 0.4%     0.1%     3.5%      610
Thomson Reuters/IFR           0.1%     0.1%     ---       605
UBS Securities LLC           -0.1%     0.0%     ---      ---
Unicredit MIB                 0.0%     ---      ---      ---
University of Maryland        0.1%     0.1%     ---      ---
Wachovia Corp.               -0.3%     0.1%     3.4%     ---
Wells Fargo & Co.             0.3%     0.1%     ---       620
WestLB AG                     0.2%     0.1%     3.4%     ---
Westpac Banking Co.           0.4%     0.2%     ---       615
Wrightson Associates          0.2%     0.0%     ---       625
================================================================

To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net

However, times have changed.

The Yuan has been creeping up over the past year and is continuing to gain strength, while the Dollar is struggling in the world market.

For retailers, the impact is crystal-clear. It shows up on their invoices. As the Yuan gets stronger, the items they purchase from China are costing more. In some cases, prices have doubled over what they were just a year ago.

For larger companies, while this is an annoyance, they can spread out the impact throughout their products and company sectors. For small businesses, this is not as easily accomplished.

So what is a small business to do?

Measure the Impact

First, take an honest look at what impact the rising Yuan is having on your business. If you regularly manufacture items in China or order products for retail sale, look closely at the increase you have seen in the past year.

Now, think about what will happen to your bottom line if things continue on this track for awhile.

Adjust as Possible

Now that you know what could happen if things keep going this way, it’s time to prepare for the worst. What can you change about your operations, sales, etc, to keep things going at your current levels while this economic shift takes place?

It may mean increasing your retail prices, or learning to do more with less in other aspects of your business for a little while.

Another option is to look into temporarily using less expensive materials or supplies to offer the same products, while waiting for the market to level out again.

Wait it Out

History shows that these economic fluxes usually level out. While it may seem painful right now, the economies of the world are often like a roller coaster ride. There will be peaks and valleys, but it will all even out eventually.

Do not make the mistake of making a rash decision like as getting rid of your Chinese suppliers, because of the current increase. Just have patience.

While the shift of the Yuan into record territory these last few weeks has many people in a panic, the smarter path is to take a deep breath, plan for this trying period and look forward to when the markets are once again on the level ground you are accustomed to.

The Fed’s decision is to help keep consumers spending and borrowing, which is good for businesses. The lowering of the short-term interest rates will also keep asset prices higher. However, the long term effect will lower the dollar which is the exact opposite of what the nation needs. The decrease in the value of the dollar had led to the rise in inflation, particularly energy.

Unfortunately, the nation is already underway into a recession, which means the country needs to focus on high-saving and low-spending-opposite of what the country is used to doing at this time. Going through a recession will force people to make that change. Lowering the short-term interest rates will only prolong the inevitable, dragging out the process.

The reason that lowering the short-term interest rates are not a good idea is that people are already stretched as it is. If the Fed’s take steps to promote consumer spending, then the consumers will become even more stretched which will hurt worse in the long run; thus reducing consumer spending is what is needed.

Additionally, mediating an orderly reduction of asset prices, such as homes and bonds will help the economy sooner rather than later. Home prices could potentially fall another 15 to 20 percent. Unfortunately, investors will have lost many millions of dollars due defaults and write-downs of residential mortgages, corporate debt, commercial mortgages, credit cards and other loans, once the dust settles after the recession, this is provided that any de-leveraging does smoothly, which probably means that the loss could be upwards of two to three times any estimated loss.

The loan that JPMorgan Chase received from the Federal Reserve is surprising and somewhat concerning because of the dicey mortgage loans, which totaled upwards of $46 million. This is one of the reasons why JPMorgan Chase offered $2 a share, which is about 20 cents on the dollar. This could pose a problem and the Federal Reserve will need to take the lead in ensuring and enforcing that the accounting practices are in compliance.

Credit card debt is not as much of a concern because there is not a 90-day window for defaults to occur as with mortgages. Plus credit card companies, since they have been dealing with low-quality borrowers for a long time, have developed policies where the interest rate is raised, anywhere up to 40 percent interest on the balance. Even with this, it is the high-risk or subprime lending mortgages, as well as the high amounts of loans people could take out which has raised the consumer-debt bubble. People are so overstretched that they are taking hardship withdrawals from their 401(k) plans or selling off stocks, just to pay the mortgage.

In essence, while the lowering of the short-term interest rate may be good in the short-term, it only prolongs the economical problems that the country is going through, which could be even more devastating; thus worse for businesses.