WASHINGTON: US producer prices increased by the most in six months in October, lifted by gains in the costs of goods and services, further bolstering the Federal Reserve’s stance that it will probably not cut interest rates again in the near term.
The report from the Labour Department on Thursday showed healthcare costs accelerated last month, with the cost of outpatient care at hospitals posting its largest rise since 2009. The jump in healthcare prices mirrored gains reported in October’s consumer price index report on Wednesday. Still, underlying producer inflation remained muted last month.
Stabilising inflation follows in the wake of fairly upbeat data on the economy, including better-than-expected job growth in October and a pickup in services sector activity, which have eased financial market fears of a recession.
The US central bank last month cut rates for the third time this year and signalled a pause in the easing cycle that started in July when it reduced borrowing costs for the first time since 2008. Fed Chair Jerome Powell again reiterated that position in testimony before lawmakers on Thursday.
The producer price index for final demand rose 0.4 per cent last month, the biggest increase since April, after falling 0.3 per cent in September. In the 12 months through October, the PPI climbed 1.1 per cent, the smallest increase since October 2016, after advancing 1.4 per cent in the 12 months through September.
Annual producer inflation retreated as last year’s hefty gain dropped out of the calculation. Economists polled by Reuters had forecast the PPI would rise 0.3 per cent in October and climb 0.9 per cent on a year-on-year basis.
Excluding the volatile food, energy and trade services components, producer prices edged up 0.1 per cent after being unchanged in September. The so-called core PPI increased 1.5 per cent in the 12 months through October after gaining 1.7 per cent in the 12 months through September. Annual core PPI also slowed last month as last October’s increase dropped out of the calculation.
The government reported on Wednesday that consumer prices rose solidly in October amid large gains in healthcare costs and prices of used cars and trucks.
The Fed, which has a 2 per cent annual inflation target, tracks the core personal consumption expenditures (PCE) price index for monetary policy. The core PCE price index rose 1.7 per cent on a year-on-year basis in September and has undershot its target this year. October PCE price data will be published later this month.
While another report from the Labour Department on Thursday showed the number of Americans filing claims for unemployment benefits rose to a five-month high last week, that likely does not signal a shift in labour market conditions as claims for several states were estimated because of Monday’s holiday.
Initial claims for state unemployment benefits increased 14,000 to a seasonally adjusted 225,000 for the week ended November 9, the highest reading since June 22. Some of the states, including California, Pennsylvania and Virginia, did not have enough time to process the claims data because of Monday’s Veterans Day holiday, leading to them making estimates. — Reuters
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