Wholesale prices rose 0.2% in October, less than expected, as inflation eased

The Bureau of Labor Statistics reported Tuesday that wholesale prices rose less-than-expected in October, raising hopes that inflation is waning.

The Producer Price Index, a measure of the prices companies receive for finished goods in the market, rose 0.2% for the month, versus Dow Jones’ estimate of a 0.4% increase.

Stock futures tied to the Dow Jones Industrial Average rose more than 400 points shortly after the release, reflecting market expectations that increases in the cost of living not seen since the early 1980s were easing, if not waning.

On an annual basis, the PPI is up 8% compared to an 8.4% increase in September and far from the 11.7% peak recorded in March. The monthly increase equates to September’s gain of 0.2%.

Excluding food, energy and trade services, the index also rose 0.2% m/m and 5.4% y/y. Excluding food and energy only, the index was flat during the month and rose 6.7% year over year.

One of the factors that contributed significantly to the slowdown in inflation was the decline in the services component of the index by 0.1%. It was the first direct drop in this metric since November 2020. Final demand prices for goods rose 0.6%, the largest gain since June that can be attributed primarily to the energy rebound, which saw a 5.7% jump in gasoline.

The slowdown came despite a 2.7% increase in energy costs and a 0.5% increase in food.

The index is generally a good leading indicator of inflation because it measures the prices of pipelines that eventually make their way into the market. The PPI differs from the more popular CPI in that the former measures the prices that producers receive at the wholesale level while the CPI reflects what consumers are actually paying.

Hopes that inflation would at least slow rose last week when the CPI showed a monthly gain of 0.4%, below the 0.6% estimate. The 7.7% annual gain was a slowdown from the 41-year peak of 9% in June. Markets also rose after the CPI release on Thursday.

Federal Reserve officials are raising interest rates in hopes of reducing inflation. The central bank raised its benchmark borrowing rate six times a year by a total of 3.75 percentage points, its highest level in 14 years.

Vice President Lyle Brainard said Monday that she expects the pace of gains to slow soon, with prices likely to continue rising. She said the Fed could move to a more “considered” stance as it monitors the impact of its interest rate increases, which included four consecutive 0.75 percentage point increases, on financial conditions.

In other economic news on Tuesday, the New York Federal Reserve’s Empire State Manufacturing Survey came in at 4.5%, up 14 percentage points month over month and much better than the estimate for a -6% reading. The index measures the difference between companies reporting expansion versus contraction.

However, both prices paid and components received saw increases, rising by 1.9 points and 4.3 points, respectively.

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