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U.S. producer prices increased solidly in October, driven by surging costs for gasoline and motor-vehicle retailing, suggesting that high inflation could persist for a while amid tight global supply chains related to the pandemic.

The U.S. Federal Reserve last week restated its belief that current high inflation is “expected to be transitory.” A tightening labour market as millions remain at home is adding to price pressures, which together with shortages of goods sharply restrained economic growth in the third quarter.

The Fed this month started reducing the amount of money it is injecting into the economy through monthly bond purchases.

“The acceleration in inflation may not fade as quickly as previously thought, particularly for businesses because of the global supply-chain issues,” said Ryan Sweet, a senior economist at Moody’s Analytics in West Chester, Penn. “Elevated inflation is turning up the heat on the Fed but they haven’t shown signs of buckling as they will stomach higher inflation to get the labour market back to full employment quickly.”

The producer price index for final demand rose 0.6 per cent last month after climbing 0.5 per cent in September, the Labour Department said on Tuesday. That reversed the slowing trend in the monthly PPI since spring. In the 12 months through October, the PPI increased 8.6 per cent after a similar gain in September.

Economists polled by Reuters had forecast the PPI advancing 0.6 per cent on a monthly basis and rising 8.7 per cent year on year.

More than 60 per cent of the increase in the PPI last month was owing to a 1.2-per-cent rise in the prices of goods, which followed a 1.3-per-cent jump in September. A 6.7-per-cent surge in gasoline prices accounted for a third of the rise in goods prices. There were increases in the prices of diesel, gas and jet fuel as well as plastic resins.

Wholesale food prices dipped 0.1 per cent as the cost of beef and veal tumbled 10.3 per cent. Prices for light motor trucks fell as the government introduced new-model-year passenger cars and light motor trucks into the PPI.

Exorbitant motor-vehicle prices have accounted for much of the surge in inflation as a global semiconductor shortage linked to the nearly two-year-long pandemic has forced manufactures to cut production, leaving virtually no inventory.

Services gained 0.2 per cent last month after a similar rise in September. An 8.9-per-cent jump in margins for automobiles and parts retailing accounted for more than 80 per cent of the increase in services. The cost of transportation and warehousing services jumped 1.7 per cent, also reflecting snarled supply chains.

Surveys from the Institute for Supply Management this month showed measures of prices paid by manufacturers and services industries accelerating in October. Manufacturers complained about “record-long raw materials lead times, continued shortages of critical materials, rising commodities prices and difficulties in transporting products.”

Data on Wednesday are expected to showed strong gains in consumer prices in October, according to a Reuters survey of economists. Stocks on Wall Street retreated from record highs. The U.S. dollar was steady against a basket of currencies. U.S. Treasury prices rose.

PORT CONGESTION

There is congestion at ports and widespread shortages of workers at docks and warehouses. There were 10.4 million job openings as of the end of August. The work force is down three million from its prepandemic level.

Worker shortages were underscored by a report from the NFIB on Tuesday showing almost 50 per cent of small businesses reported job openings they could not fill in October.

Also on Tuesday, Fed chair Jerome Powell emphasized the U.S. central bank’s commitment to maximum employment, telling a virtual conference on diversity and inclusion in economics, finance and central banking that “an economy is healthier and stronger when as many people as possible are able to work.”

Wholesale prices of apparel, footwear and truck transportation of freight also rose last month as did the costs of food and alcohol retailing, hospital outpatient care as well as machinery, equipment parts and supplies.

Excluding the volatile food, energy and trade services components, producer prices shot up 0.4 per cent. The so-called core PPI gained 0.1 per cent in September. In the 12 months through October, the core PPI rose 6.2 per cent. That followed a 5.9-per-cent advance in September.

Construction prices surged 6.6 per cent, the largest gain since the series was incorporated into the PPI data in 2009.

“As companies feel the squeeze from higher energy and labour costs, as well as persistent logistics issues, producer price increases should be robust in the coming months,” said Will Compernolle, a senior economist at FHN Financial in New York.

Details of the PPI components, which feed into the personal consumption expenditures (PCE) price index, excluding the volatile food and energy component, were mixed. The core PCE price index is the Fed’s preferred measure for its flexible 2-per-cent target. Health care costs increased 0.4 per cent. Airline tickets rebounded 0.3 per cent, but portfolio management fees dropped 2.2 per cent.

Though the October CPI data are still pending, economists believed that the core PCE price index moved higher last month after increasing 3.6 per cent year on year in September.

“For now, we think the core PCE price index will be up 3.8 per cent year on year in October,” said Daniel Silver, an economist at JPMorgan in New York.

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