U.S. Markets

U.S. producer prices increase by the most in six months

WASHINGTON, (Reuters) - U.S. producer prices increased by the most in six months in October, lifted by gains in the costs of goods and services, further bolstering the Federal Reserve’s stance that it will probably not cut interest rates again in the near term.

A shopper walks by the sodas aisle at a grocery store in Los Angeles April 7, 2011. REUTERS/Mario Anzuoni

The Labor Department said on Thursday its producer price index for final demand rose 0.4% last month, the biggest increase since April, after falling 0.3% in September.

In the 12 months through October the PPI climbed 1.1%, the smallest increase since October 2016, after advancing 1.4% in September. Annual producer inflation retreated as last year’s hefty gain dropped out of the calculation.

Economists polled by Reuters had forecast the PPI would rise 0.3% in October and climb 0.9% on a year-on-year basis.

Excluding the volatile food, energy and trade services components, producer prices edged up 0.1% after being unchanged in September. The so-called core PPI increased 1.5% in the 12 months through October after gaining 1.7% in September. Annual core PPI also slowed last month as last October’s increase dropped out of the calculation.

The data came on the heels of a report on Wednesday showing a strong rise in consumer prices in October amid large gains in healthcare costs and prices of used cars and trucks.

The Fed, which has a 2% annual inflation target, tracks the core personal consumption expenditures (PCE) price index for monetary policy. The core PCE price index rose 1.7% on a year-on-year basis in September and has undershot its target this year. October PCE price data will be published later this month.

The U.S. central bank last month cut rates for the third time this year and signaled a pause in the easing cycle that started in July when it reduced borrowing costs for the first time since 2008. Fed Chair Jerome Powell reiterated that stance in testimony before lawmakers on Wednesday.

Stabilizing inflation follows in the wake of fairly upbeat data on the economy, including better-than-expected job growth in October and an acceleration in services sector activity, which have eased financial market fears of a recession. There have also been hopeful signs in the 16-year trade war between the United States and China, which has pressured business investment and manufacturing.

In October, wholesale energy prices rebounded 2.8% after dropping 2.5% in September. They were boosted by a 7.3% surge in gasoline prices, which followed a 7.2% decline in September.

Gasoline accounted for nearly half of the 0.7% increase in goods prices last month. Goods prices fell 0.4% in September.

Wholesale food prices jumped 1.3% in October after rising 0.3% in September. Core goods prices were unchanged last month. They slipped 0.1% in September.

The cost of services increased 0.3% last month after decreasing 0.2% in September. Services were lifted by a 0.8% surge in trade services, which measure changes in margins received by wholesalers and retailers.

The cost of healthcare services accelerated 0.8% in October after gaining 0.3% in the prior month. The cost of hospital outpatient care increased 0.7% last month, the most since July 2009. Inpatient care prices rose 0.6%, the most since October 2018. Those healthcare costs feed into the core PCE price index.

They mirrored gains reported in October’s CPI report.

Reporting by Lucia Mutikani Editing by Paul Simao