October PPI More Inflationary Than Expected, at Least on the Surface

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The U.S. Department of Labor released the data for October’s Producer Price Index, or PPI. The inflation at the producer level for October was higher than expected, and headline inflation came in at 0.2%, against the Bloomberg consensus estimate of -0.1%. The core PPI read at 0.1%, which met the consensus estimates. September had a reading of -0.1% for PPI and was flat sans food and energy.

The index for final demand services was up 0.5% in October, which was the largest increase since July 2013. The October increase is due to a 1.5% increase in margins for final demand trade services.

Dropping oil prices should play a big role in most of the PPI readings. In October, a 26.1% jump in margins for fuels and lubricants retailing accounted for nearly 40% of the increase in the index for final demand services.

The indexes for machinery, equipment, parts and supplies wholesaling; food and alcohol retailing; food and alcohol wholesaling; inpatient care; and traveler accommodation services also moved higher.

The index for final demand goods moved down 0.4% in October, marking the fourth consecutive decrease. The October decline was driven by prices for final demand energy, which fell 3.0%. The index for final demand goods, excluding foods and energy, edged down 0.1%. At the same time, prices for final demand foods moved up 1.0%.

Over 80% of the October decline in prices for final demand goods can be attributed to the index for gasoline, which fell 5.8%. Prices moved lower for products such as liquefied petroleum gas, prepared animal feeds, home heating oil, diesel fuel and ethanol. In contrast, the index for meats increased 5.3%. Prices for electric power, pharmaceutical preparations and passenger cars also increased.

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