Services and food drive up US producer prices; some relief might be on the way

  • The producer price index increases by 0.4% in September
  • PPI excluding food, energy and trade increases by 0.4%
  • Producer prices up 8.5% YoY; Base PPI gains 5.6%

WASHINGTON, Oct 12 (Reuters) – U.S. producer prices rose more than expected in September, but underlying goods prices fell to their lowest level in nearly two and a half years as chains supply conditions have improved further, offering some hope in the fight against inflation.

Wednesday’s Labor Department report also suggested producers may struggle to pass on higher prices, with a measure of changes in margins received by wholesalers and retailers barely rising in the past month. The prices of intermediate goods and services also increased moderately.

“Inflation is a matter of costs being passed down to the lower level of production, so this report counts as relief for beleaguered consumers who face runaway inflation on goods that sit on store shelves,” said Christopher Rupkey, chief economist at FWDBONDS in New York. .

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“The Fed’s war on inflation has yet to be won, but at least producer-level commodity costs have stopped rising at a pace that seemed out of control earlier this year.”

The final demand producer price index rebounded 0.4% last month. Data for August has been revised down to show the PPI fell 0.2% instead of falling 0.1% as previously reported. Economists polled by Reuters had forecast the PPI to rise 0.2%.

A 0.4% rise in the price of services accounted for two-thirds of the rise in the PPI in September. Services rose 0.3% in August. More than a quarter of September’s increase was attributable to a 6.4% rise in prices for accommodation in hotels and motels.

There were also increases in the costs of food and alcohol retailing, portfolio management, machinery and vehicle wholesale, oil and gas well drilling services as well as inpatient care. But prices for long-haul freight fell, as did retail fuel and lubricants and consumer loans.

Prices for transportation and warehousing services fell 0.2%, falling for a third straight month and also benefiting from easing bottlenecks in supply chains. End-demand commercial services margins edged up 0.1%.

Goods prices rose 0.4% after falling 1.1% in August. A 1.2% jump in food prices accounted for 60% of the increase in goods. Food prices were boosted by a 15.7% rise in the cost of fresh and pulsed vegetables. Pig and chicken egg prices also increased.

Energy prices rose 0.7%, led by diesel fuel, residential natural gas and heating oil. But wholesale gasoline prices fell 2.0%. Excluding food and energy, goods prices remained unchanged. It was the weakest reading for so-called core goods since May 2020, and followed a 0.2% gain in August.

Basic goods rose 7.5% in the 12 months to September, slowing from an 8.1% increase in August.

Annual prices for basic goods have slowed since peaking at 10.2% in April. Prices for processed intermediate goods increased by 0.1%, while services increased by 0.3%.

“The prospect of disinflation in the goods sector in the coming months remains intact,” said Sarah House, senior economist at Wells Fargo in Charlotte, North Carolina. “And further down the pipeline, price growth for intermediate goods and services continues to decline and supports our view that the worst of inflation is likely over, although price growth is likely to remain elevated for some time to come. .”

Wall Street stocks rose slightly. The dollar remained stable against a basket of currencies. US Treasury prices rose.

EASING SUPPLY CHAINS

In the 12 months to September, the PPI rose 8.5% after rising 8.7% in August, reflecting improved supply chains as well as a decline in commodity prices compared to the peaks observed in the spring.

But oil prices have likely bottomed out after last week’s decision by the Organization of the Petroleum Exporting Countries and its allies to cut crude production. Russia’s war on Ukraine poses an upside risk to commodity prices.

Thursday’s data is expected to show a recovery in consumer prices in September, according to a Reuters survey of economists, paving the way for a 75 basis point interest rate hike by the Federal Reserve next month for the fourth time this year.

Financial markets nearly priced in a three-quarters percentage point rate hike at the US central bank’s Nov. 1-2 policy meeting, according to CME’s FedWatch tool. Since March, the Fed has raised its key rate from near zero to the current range of 3.00% to 3.25%.

Excluding the volatile components of food, energy and market services, producer prices also increased by 0.4% in September.

The core PPI rose 0.2% in August. In the 12 months to September, the core PPI rose 5.6% after a similar gain in August. Inflation by all measures is well above the Fed’s 2% target.

“Supply chain improvements have cooled commodity prices, but pricing pressures everywhere else serve as a reminder that supply chain healing is insufficient to reduce overall price inflation,” Will said. Compernolle, senior economist at FHN Financial in New York.

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Reporting by Lucia Mutikani; Editing by Chizu Nomiyama, Andrea Ricci and Jonathan Oatis

Our standards: The Thomson Reuters Trust Principles.

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