U.S. producer prices increased less than expected in October as services fell for the first time in nearly two years, offering more evidence that inflation was starting to subside, potentially allowing the Federal Reserve to slow its aggressive pace of interest rate hikes.
The report from the Labor Department on Tuesday also showed a decline in the cost of goods excluding food and energy, reflecting improved supply chains as well as slowing demand from higher borrowing costs. This supports economists’ views that goods disinflation was under way, helping to curb inflation.
The report followed on the heels of data last week showing consumer prices rose less than expected in October, pushing the annual increase below 8 per cent for the first time in eight months.
“The improvement in the October inflation data, if it persists, supports the Fed’s expectation of a step down in the pace of increases going forward,” said Rubeela Farooqi, chief U.S. economist at High Frequency Economics in White Plains, New York.
The producer price index for final demand rose 0.2 per cent last month. Data for September was revised lower to show the PPI rebounding 0.2 per cent instead of 0.4 per cent as previously reported.
A 0.6 per cent increase in the price of goods accounted for the increase in the PPI last month. Goods prices rose 0.3 per cent in September. Gasoline jumped 5.7 per cent, making up 60 per cent of the rise in goods prices. Food prices rose 0.5 per cent, lifted by fresh and dry vegetables as well as chicken eggs. Excluding food and energy, goods prices dipped 0.1 per cent after being unchanged in September.
In the 12 months through October, the PPI increased 8.0 per cent. That was the smallest year-on-year increase since July 2021 and followed an 8.4 per cent advance in September.
Economists polled by Reuters had forecast the PPI rising 0.4 per cent and advancing 8.3 per cent year-on-year.
Services fell 0.1 per cent, the first decline since November 2020, after rising 0.2 per cent in September. There were decreases in trade services, which measure changes in margins received by wholesalers and retailers. Prices for transportation and warehousing services fell 0.2 per cent.
The costs of portfolio management, long-distance motor carrying, automobile retailing as well as professional and commercial equipment wholesaling also declined.
But prices for hospital inpatient care increased 0.8 per cent. There were also increases in prices for securities brokerage and dealing, apparel wholesaling and airline passenger services.
Services excluding trade, transportation and warehousing increased 0.2 per cent. The rotation of spending back to labour-intensive services and a still-tight jobs market could keep price pressures elevated for a while.
U.S. stocks opened higher. The dollar slipped against a basket of currencies. U.S. Treasury prices rose.
The Fed early this month delivered a fourth consecutive 75-basis-point interest rate hike and said its fight to lower inflation to the U.S. central bank’s 2 per cent target would require borrowing costs to rise further. It, however, signalled it may be nearing an inflection point in what has become the fastest rate hiking cycle since the 1980s.
Excluding the volatile food, energy and trade services components, producer prices rose 0.2 per cent in October. The so-called core advanced 0.3 per cent in September.
In the 12 months through October, the core PPI rose 5.4 per cent after increasing 5.6 per cent in September.