Dropping US producer price growth improves the US inflation outlook
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In October, US producer prices came in lower than expected amid a drop in services for the first time in almost two years. The numbers showed that inflation was slowing down, raising speculations that the Federal Reserve would ease interest rate hikes.
US producer price growth figure show easing inflation
The figures released by the US Labor Department on Tuesday showed a notable drop in the cost of wholesale products apart from food and energy. This demonstrated that supply chains were improving amid slowing demand due to high borrowing costs.
The data released last week showed that consumer prices increased at a lower-than-expected rate, dropping inflation to 7.7%. In October, the producer price index (PPI) for final demand increased 0.2%.
In September, the data was revised, showing that the PPI increased by 0.2% and not the 0.4% previously reported. This was a slight year-on-year increase, following an 8.4% advance during the month.
Reuters had earlier predicted that the PPI would increase 0.4% and advance 8.3% year-on-year. There was a 0.6% rise in goods prices, which translated to an increase in PPI in October. In September, goods prices increased 0.3%. Gas prices rose 5.7%, accounting for 60% of the entire increase in goods prices. Food prices also increased 0.5%.
Apart from food and energy, the price of goods dropped 0.1%. This was the first drop in core goods since May 2020. The reading for the same in September remained the same. Last week, the consumer price index (CPI) report also showed that consumer goods prices had dropped in October.
Disinflation in core goods has been a topic of discussion among economists regarding inflation levels in the US. On Sunday, a Goldman Sachs report said inflation would slow down significantly amid a drop in goods prices.
Fed expected to lower inflation
The Fed’s target is to lower inflation levels below 2%. Earlier this month, the Federal Reserve raised interest rates by 75 basis points again but also hinted at being close to the inflection point. The recent interest rate hike has been the fastest hiking cycle since the 1980s.
Financial market analysts estimate that the Fed will move to a half-point interest rate hike during the next Federal Open Market Committee (FOMC) meeting on December 13-14.
Last week, the release of the inflation data triggered a notable rally in US stocks and key indexes such as the S&P 500 and Nasdaq. Stocks have also rallied in response to this news.
