The Producer Price Index for final demand in the US increased by only 0.2% MoM in October, the same as a downwardly revised 0.2% increase in September and below analysts’ estimates of 0.4%. Goods cost increased 0.6%, the largest advance since a 2.2% rise in June, mainly due to 5.7% increase of gasoline cost. Prices for diesel fuel, fresh and dry vegetables, residential electric power, chicken eggs, and oil field and gas field machinery also moved higher. On the other hand, the index for passenger cars fell 1.5%. Meanwhile, services cost dropped 0.1%, for the first time since November of 2020. Prices for fuels and lubricants retailing fell 7.7% and prices also moved lower for portfolio management, long-distance motor carrying, automobile retailing, and professional and commercial equipment wholesaling . In contrast, the cost for hospital inpatient care jumped 0.8%. On a YoY basis, producer prices were up 8%, the smallest increase since July last year.
Core producer prices were unchanged in October after a downwardly revised 0.2% jump in September and compared to market projections of a 0.35 increase. Year-on-year, core producer prices advanced 6.7%, below economists’ estimates of 7.2%.
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Headline PPI increased 8.0% YoY which is the lowest since July 2021, the lowest in over a year. Source: Bloomberg via ZeroHedge
The energy contribution to index continues to deteriorate, while services was clearly a major contributor on YoY basis. Source: Bloomberg BQNT, Bureau of Labour Statistics.
Recent CPI and PPI reports only raised speculation about a possible policy pivot which was also encouraged by Fed Vice Chair Lael Brainard, who signaled that the central bank could soon slow the pace of its interest rate increases. Also lower commodity prices and declining freight costs suggest that logistic problems are starting to ease, which in turn reduces the pressure for companies to raise prices for consumers. However, this is only a first month of improvement and FED members frequently stated that they will also be looking at other data especially from the labor market which remains tight and will most likely want to see steady CPI decline in the upcoming months. Nevertheless, despite a higher degree of uncertainty regarding the Fed's rate path, the narrative of a possible policy pivot consolidated as money markets priced an over 80% chance of a 50 bps hike in December.
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