THE TAKEAWAY: U.S. producer prices rose more than expected in September on higher energy costs > Underlying price pressures contained; gives Fed room to carry out stimulus plan > USDJPY bearish
U.S. wholesale prices rose more than expected in September, reflecting a surge in fuel prices. The U.S. Bureau of Labor Statistics (BLS) reported that producer prices climbed 1.1 percent in September from a month ago, following a 1.7 percent jump in August. The core index, which excludes the volatility of food and energy costs, remained unchanged in September, the lowest reading since October 2011. The median estimate of economists surveyed by Bloomberg News had called for a 0.8 percent gain in overall wholesale prices and 0.2 percent rise in core prices.
Compared to the same month a year earlier, producer prices rose 2.1 percent in September, while the core index increased by 2.1 percent. Economists had projected overall prices to rise 1.8 percent, and core prices to climb 2.5 percent.
The larger-than-expected increase in wholesale prices last month was driven by a 4.7 percent spike in energy prices. Meanwhile, underlying inflation pressures remained muted as the slowdown in overseas economies continues to restrain demand for raw materials. As businesses are likely to face difficulties in passing on higher energy costs onto customers, consumer prices should remain contained. This will give the Federal Reserve room to focus on boosting job growth and carry out its new monetary stimulus program.
USDJPY 1-minute Chart: October 12, 2012
Chart created using Market Scope – Prepared by Tzu-Wen Chen
After the BLS report was released, the U.S. dollar declined against the Japanese yen, falling from a pre-release level of 78.39 to as low 78.30. At the time of this report was written, the greenback had rallied back against the yen to trade at 78.40 yen, following the release of the University of Michigan Confidence Index which had jumped to its higher level since before the recession began five years ago.
--- Written by Tzu-Wen Chen, DailyFX Research