U.S. producer prices unchanged in October on weak services

By | November 16, 2016

Shoppers stand by the vegetables aisle inside a Fresh & Easy store in Burbank, California October 19, 2012. REUTERS/Mario Anzuoni

U.S. producer prices were unexpectedly flat in October as a rise in the cost of goods was offset by declining services costs.

The Labor Department said on Wednesday that the unchanged reading in its producer price index for final demand last month followed a 0.3 percent increase in September.

In the 12 months through October, the PPI increased 0.8 percent, the biggest gain since December 2014. That followed a 0.7 percent rise in September.

Economists polled by Reuters had forecast the PPI rising 0.3 percent last month and accelerating 1.2 percent from a year ago.

Longer-dated U.S. Treasury bonds erased losses after the report, while the dollar fell to session lows against the euro and the yen.

Goods prices, including energy, increased 0.4 percent last month after rising 0.7 percent in September. The cost of services declined 0.3 percent after edging up 0.1 percent in September.

Declining goods prices have been the main force keeping inflation benign. The drop has been driven by the a surge in the dollar from mid-2014 through January this year, as well a collapse in oil prices.

With the dollar’s rally appearing to have peaked and oil prices having bounced off multi-decade lows, the disinflationary impulse is easing, which could allow overall inflation to gradually rise toward the Federal Reserve’s 2 percent target.

Inflation could push higher in the coming years if president-elect Donald Trump presses ahead with his agenda to boost infrastructure and defense spending at a time when the economy is expected to be at full employment.

Last month, energy prices rose 2.5 percent after a similar gain in September. Wholesale food prices fell 0.8 percent after rising 0.5 percent in September.

The drop in prices for services last month was led by declining prices for the volatile trade services, which measure changes in margins received by wholesalers and retailers. They fell for a fourth straight month.

Healthcare costs increased 0.3 percent last month after edging up 0.1 percent in September. The cost of hospital care rose 0.3 percent, adding to September’s 0.4 percent gain.

These healthcare costs feed into the Fed’s preferred inflation measure, the core personal consumption expenditures index.

A key gauge of underlying producer price pressures that excludes food, energy and trade services dipped 0.1 percent after rising 0.3 percent in September.

The so-called core PPI increased 1.6 percent in the 12 months through October, the largest rise since September 2014. That followed a 1.5 percent increase in September.

[Source:- Reuters]