Producer prices fall for second straight month

Producer prices fell in September with lower energy prices, and dropped for the second consecutive month, the Labor Department reported Wednesday.

The Producer Price Index (PPI), which measures prices at the factory door and inflation pressures before they reach the consumer, decreased in September to 0.4%. The drop was in line with analysts’ expectations. September’s decline follows a 0.9% drop in August and a 1.2% increase in July — a month that marked a 27-year high.

Falling energy prices was the key to easing price pressures as highlighted by the stark contrast of Tuesday’s Nymex crude-oil price of $78.63 per barrel compared to a record high near $147 per barrel in July. Energy prices fell 2.9 percent in September after tumbling 4.6 percent in August — a month that marked the biggest drop in nearly two years.

Core producer prices, which exclude volatile food and energy costs, rose by a surprising 0.4%, or double what analysts had expected.

Inflation likely to lower at consumer level

The decline in overall producer prices is an indication inflation at the consumer level could continue to slow in the coming months. Inflation eased to 5.4% in August, as consumer prices declined 0.1% following July’s 0.8% increase — a month that marked the fastest growing inflation rate in 17 years.

The Labor Department’s scheduled consumer price report for September will occur Thursday at 8:30 AM. Most economists expect a 0.1% rise.

Lower inflation makes it easier for the Federal Reserve to cut its target interest rate to stimulate economic growth, as happened last Wednesday when the Fed lowered the federal funds rate 50 basis points to 1.5%. Many economists expect the Fed to cut rates again at their next FOMC policy meeting on October 28-29.

Also on Wednesday, the Commerce Department reported that U.S. retail sales fell 1.2% for September, which is the worst drop in three years and the third decline in a row, further signaling a flat U.S. economy.

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