WASHINGTON (Reuters) - U.S. producer prices rose more than expected in October, driven by a surge in the cost of services, leading to the biggest annual increase in wholesale inflation in more than 5-1/2 years.
Tuesday’s report from the Labor Department also showed steady gains in underlying producer prices, which supported expectations of a gradual increase in inflation and keep the Federal Reserve on track to raise interest rates in December.
“Reports that inflation is dead or too low are not true in every corner of the economy,” said Chris Rupkey, chief economist at MUFG in New York. “It won’t be long before producers will be faced with having to raise the prices of consumer goods if inflation continues to percolate here.”
The producer price index for final demand increased 0.4 percent last month after a similar gain in September. That lifted the year-on-year increase in the PPI to 2.8 percent, the largest rise since February 2012, from 2.6 percent in September.
Economists had forecast the PPI edging up 0.1 percent last month and increasing 2.4 percent from a year ago. Last month’s rise in prices received by the nation’s farms, factories and refineries reflected a 0.5 percent surge in the cost of services, mostly margins received by wholesalers and retailers.
Margins for fuels and lubricants retailing soared 24.9 percent, accounting for almost half of the increase in the cost of services last month. Services rose 0.4 percent in September.
The rise in services helped to offset a 4.6 percent drop in the cost of gasoline. Wholesale gasoline prices spiked 10.9 percent in September in the aftermath of Hurricane Harvey, which struck Texas in late August and reduced refining capacity in the Gulf Coast area.
Gasoline prices are falling amid ample crude oil supplies. The strong producer price readings probably did not translate into higher consumer prices in October as the correlation between the PPI and consumer price index has weakened.
Still, firming inflation at the factory gate is likely to be welcomed by Fed officials who have long argued that price pressures were being held back by transitory factors.
U.S. producer prices rise; inflation firming
November 15, 2017 by Leave a Comment