U.S. Producer Prices Rise in October, but Core Wholesale Inflation Falls

U.S. producer prices in October increased 0.3% as a result of higher food and energy prices, but core wholesale inflation, which excludes the volatile food and energy costs, declined 0.6%, according to a government reported released Tuesday.

The Labor Department’s Producer Price Index, which measures inflation pressures before they reach the consumer, has increased twice during the past four months. Prices declined 0.6% in September following a 1.7% increase in August.

Energy prices at the wholesale level increased 1.6% in October after a decline of 2.4% in September. Gasoline costs climbed 1.9%, accounting for almost half of the increase. Food prices also rose 1.6%, following a 0.1% decline in the month prior. Fresh and dry vegetables prices jumped 24.2% and accounted for about half of the increase.

"There is little doubt that over the last few months, inflation has picked up in the economy," wrote Dan Greenhaus, an economist for Miller Tabak & Co. who was cited on MarketWatch. "But in a general sense, the overall slack in the economy and weakness in the labor market will work to hold down broader inflation measurements over the coming quarters."

Compared with a year earlier, producer prices were 1.9% lower in October.

The 0.6% October drop in the core wholesale inflation rate was the biggest decline since July 2006 and follows a 0.1% retreat in September.

"With weak final demand and limited cost pressure, there’s no reason to see core inflation turn up here," Zach Pandl, an economist at Nomura Securities International Inc. in New York, was quoted on Bloomberg. The slower gain in core prices from a year earlier "is closer to what the Fed would like to see."

On an annual basis, core producer prices rose 0.7% versus the 1.8% reading from the month prior. The former is the smallest 12-month gain since March 2004 while the latter was the smallest since July 2007.

The government’s Consumer Price Index (CPI) for October is scheduled for release on Wednesday at 8:30 AM ET. The CPI measures inflation pressures at the consumer level.

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