Core Producer Prices Show Unexpected Decrease In October

(RTTNews) - With food and energy prices showing notable increases, the Labor Department released a report on Tuesday showing a modest increase in producer prices in October, although core prices unexpectedly showed a moderate decline.

The Labor Department said its producer price index rose 0.3 percent in October following an unrevised 0.6 percent decrease in September. Economists had been expecting prices to increase by a somewhat more significant 0.5 percent.

Notable increases in food and energy prices contributed to the modest increase in producer prices, with energy prices jumping 1.6 percent in October after falling by 2.4 percent in September, while food prices rose 1.6 percent after edging down 0.1 percent in the previous month.

At the same time, core producer prices, which exclude food and energy prices, fell 0.6 percent in October after slipping by 0.1 percent in the previous month. The decrease came as a surprise to economists, who had expected core prices to edge up by 0.1 percent.

The unexpected decrease in core producer prices was due in large part to a sharp drop in prices for light motor trucks, which fell by 5.2 percent in October. Passenger car prices also edged down by 0.5 percent after rising in each of the two previous months.

On an annual basis, the report showed that producer prices were down 1.9 percent in October compared to the same month a year ago. While this reflects the eleventh consecutive month of annual declines in prices, it markets the slowest pace of decline since February.

Core producer prices in October were up 0.7 percent year-over-year, although this reflects a slowdown from the 1.8 percent annual rate of growth that was seen in September.

Chris Low, chief economist at FTN Financial, said, “The core dropping to 0.7% year-on-year is bigger news, because most of the drop in the headline PPI reflects energy prices falling last fall and winter.”

“Core producer price inflation accelerated above 4.5% during the boom in the latter part of the previous cycle, but plunged during the recession,” Low added. “Core producer prices tend to bottom a year or two after recessions, so there is still disinflation to come at the wholesale level.”

Wednesday morning, the Labor Department is due to release a separate report on consumer price inflation in the month of October. Economists expect consumer prices to increase by 0.2 percent, while core consumer prices after expected to edge up by 0.1 percent.

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