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Producer Prices in U.S. Increase in October by Most Since 2012

Shobhana Chandra
Producer Prices in U.S. Increase in October by Most Since 2012

(Bloomberg) -- U.S. producer prices rose more than forecast in October for the biggest jump in six years on broad gains in costs for goods and services, a Labor Department report showed Friday.

The producer-price index rose 0.6 percent from September after a 0.2 percent advance, and climbed 2.9 percent from a year earlier after a 2.6 percent gain. Excluding food and energy costs, the core PPI readings were also up more than forecast, rising 2.6 percent from October 2017 and 0.5 percent from the prior month.

Key Insights

The figures, which measure wholesale and other selling prices at businesses, indicate that price pressures in the production pipeline are advancing steadily. Along with solid demand, the tariff war with China has raised concern that producers will face rising prices and supply-chain disruptions for materials. The Federal Reserve on Thursday reiterated its plan to keep lifting interest rates gradually. The main PPI results exceeded the median estimates in a Bloomberg survey of economists calling for a 2.5 percent annual increase and a 0.2 percent month-over-month rise. The Bloomberg survey median was for a core monthly advance of 0.2 percent and 2.3 percent annual gain.Producer costs excluding food, energy, and trade services, a measure some economists prefer because it strips out the most volatile components, rose 0.2 percent from the prior month, and rose 2.8 percent from a year earlier following a 2.9 percent gain.While the consumer price index -- due next week -- is considered a more important indicator of inflation, data on producer prices help provide insights into the direction of input costs that businesses are facing. Analysts watch this data to assess how likely it is that gains will filter through on to consumers.

Markets

Treasuries pared gains after the report. The benchmark 10-year note yielded 3.22 percent, up from as low as 3.2 percent earlier Friday.

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The PPI report also showed the cost of goods climbed 0.6 percent, the biggest gain since May. Services prices increased 0.7 percent, the most since January 2016. About three-fourths of the increase reflected higher margins for wholesalers and retailers, the report showed.Energy goods prices jumped 2.7 percent from the prior month, while food costs rose 1 percent.

(Updates with chart, market reaction.)

--With assistance from Kristy Scheuble and Mark Tannenbaum.

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

To contact the editors responsible for this story: Scott Lanman at slanman@bloomberg.net, Jeff Kearns

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