Instant View: Core producers prices fall 0.6 percent in October

NEW YORK (Reuters) - U.S. core producer prices unexpectedly fell in October to post their largest decline in more than four years, according to a government report on Tuesday that underscored the Federal Reserve's concerns about the low inflation environment.

The Labor Department said the core producer price index, excluding food and energy costs, fell 0.6 percent -- the biggest drop since July 2006 -- after edging up 0.1 percent in September. Economists polled by Reuters had expected core PPI to gain 0.1 percent in October.

The headline PPI index rose 0.4 percent last month, well below economists' expectations for a 0.8 percent increase, after gaining 0.4 percent in September.

ANALYSTS COMMENTS:

HUGH JOHNSON, CHIEF INVESTMENT OFFICER, HUGH JOHNSON ADVISORS LLC, ALBANY, NEW YORK:

"The decline in the core prices is clearly softer or weaker than expected. It's somewhat troubling because it suggests that the Federal Reserve's fight against inflation may be tougher than we might have thought a week ago. These numbers jump around from month to month, but it's still troubling."

SEAN INCREMONA, ECONOMIST, 4CAST LTD, NEW YORK:

"Its pretty disappointing, but weakness tends to be mainly in autos, which tends to be the volatile component which could affect the core the most."

"It conflicts with some of the recent price data we've seen, but overall it could be disappointing if this month's loss is sustained."

"There's been some questions about whether the Fed might ease off or not and bonds have fallen somewhat in the last few days. This data could go against this somewhat, but at the margins it could just hold off tile the CPI data tomorrow."

TOM SIMONS, MONEY-MARKET ECONOMIST, JEFFERIES & CO., NEW YORK:

"What I think of the PPI is I'm very surprised. I really thought there was going to be some greater pressure from increased food prices.

"I think everybody was looking for even a stronger number in energy.

"But the biggest surprise is this strange decline in motor vehicles. That's really the biggest weakness in the core. This is not what we were looking for here, I think everybody was thinking we were going to get some more lively inflation data. Not necessarily because of the Fed's buying program but because of the recent devaluations of the dollar.

"I don't really think there's a clear explanation for the stuff I've read--there's not really a good story to tell.

"People are more focused on the CPI due out tomorrow, so I think it's going to fall kind of in the background, so I think it's just another one of these anomalous data releases that people aren't going to really care too much about.

"It's certainly not what the Fed wants to see."

BRIAN DOLAN, CHIEF CURRENCY STRATEGIST, FOREX.COM, BEDMINSTER, NEW JERSEY:

"It's a dollar negative. It's certainly undercutting all the arguments that inflation is ready to break out here. We've had a backup in Treasury yields, and I expect them to come off even further. It'll also keep a lid on dollar/yen and put a floor under the euro, as would a resolution of Ireland's issues. The euro fell to an area of pretty significant support in the $1.3550-60 range and I think we could see it stabilize. Commodity prices have come up, but this data shows producers can't pass it along. So inflation is probably not going to show up in the CPI data either."