INSTANT VIEW: Wholesale inflation tame in October

NEW YORK (Reuters) - U.S. producer prices rose more slowly than expected in October despite a rebound in food and energy costs, according to a government report on Tuesday that pointed to tame inflation pressures.

KEY POINTS:

* The Labor Department said the seasonally adjusted index for prices paid at the farm and factory gate rose 0.3 percent following a 0.6 percent drop in September.

* Analysts polled by Reuters had expected producer prices to increase by 0.5 percent last month. Compared with the same period last year, producer prices were 1.9 percent lower in October, a touch softer than market expectations for a 1.8 percent drop.

* Excess economic slack following the worst U.S. recession in 70 years has largely suppressed inflation but there are fears that massive efforts by both the government and the Federal Reserve to restore growth could ignite price pressures in the future.

* The department said that gasoline prices rose 1.9 percent last month and were down 16 percent versus a year ago. Finished consumer foods rose 1.6 percent on the month, the largest gain since February 2007, and were down 2.7 percent compared to October last year.

* Core producer prices, which exclude food and energy costs, unexpectedly dropped 0.6 percent last month -- the largest decline since July 2006 -- after slipping 0.1 percent in September. The core index had been forecast to rise 0.1 percent in October.

* The core producer price index was 0.7 percent higher measured on a year-on-year basis, versus a forecast for a 1.4 percent rise. The core index excluding cars and light trucks rose 0.1 percent from September. Light motor truck prices fell 5.2 percent in October, the biggest drop since October 2006.

COMMENTS:

DAVID ADER, HEAD OF GOVERNMENT BOND STRATEGY, CRT CAPITAL GROUP LLC, STAMFORD, CONNECTICUT:

"The core number was significantly weaker-than-expected and most of that was attributable to the drop in cars and light trucks (under the capital equipment category, a 26.6% weighting to overall PPI). The BLS says this was a function of value of quality changes, model year changes, slack demand. Presumably the seasonal factors expected more of a contribution.

"The market is doing NOTHING with this data even though we skew it to the bullish side reminding that rising food and energy costs are more a tax on consumption/profits than an indication of organic demand due to economic growth."

JEFF KLEINTOP, CHIEF MARKET STRATEGIST, LPL FINANCIAL, BOSTON:

"Taking a look at the numbers, we continue to see inflation in the crude level of PPI, so in food and in energy - some of that is related to the decline in the dollar, some of that is related to the rebound in commodity prices. But we're not seeing that flow through to core finished PPI, those prices remain tame with the abundance of global labor and factory capacity acting as a shock absorber to those higher raw material prices. That gives the Fed some breathing room here to allow them to wait to raise rates until sometime maybe in the middle of next year.

"It really didn't shake anything because it was almost supportive of what was said yesterday by the Fed, Bernanke kind of talked down the need to raise interest rates, given concerns about the banking sector and the lack of a bubble developing and clearly that is supported by this data which still shows inflation pressures remain tame."

DAN FARETTA, SENIOR MARKET STRATEGIST, LIND-WALDOCK, CHICAGO:

"It was a little lower than expected, which I don't think is a big deal. If the number was way off one way or the other it'd be a bigger deal, but right now the market isn't having much of a reaction to it. We have to see how the day trades out. If the dollar stays up, we'll probably see the market continuing to slide lower.

"Investors will probably pay more attention to the retail earnings today. Home Depot beat expectations by lowering costs, not by top-line sales. Investors may look into that a little more. We want to know how the company is beating the Street, not whether it does. You can't cut prices forever, and I think this will be more important than PPI today."

LAWRENCE GLAZER, MANAGING PARTNER, MAYFLOWER ADVISORS, BOSTON:

"When you look at the PPI numbers, inflation remains under control and benign at least for now. The concern is that if you do get a more pronounced economic recovery, what will the impact be.

"There are two stories still going on in the market. You have relatively low measured inflation and very low fixed income yields and at the other extreme is the message that gold and commodities are sending. The wild card remains the impact of a weaker dollar."

ZACH PANDL, ECONOMIST, NOMURA SECURITIES INTERNATIONAL, NEW YORK:

"It's a big surprise on the core. It looks like light trucks accounted for much of the decline. It does reverse some of the recent increases given the struggle of the auto sector."

MARKET REACTION: STOCKS: U.S. stock index futures pared losses. BONDS: U.S. Treasury debt prices rose, reducing losses. DOLLAR: U.S. dollar fell against the yen.