U.S. producer prices rose less than expected in October and underlying wholesale prices posted the biggest decline since July 2006, indicating disinflation pressures remain in the economy.
The index of producer prices, which measures how much manufacturers and wholesalers pay for goods and materials, rose a seasonally adjusted 0.4% for finished goods last month from September on the back of higher energy prices, the Labor Department said Tuesday.
Stripping out more-volatile food and energy prices, however, wholesale prices fell by 0.6% in October, the sharpest drop in more than four years. There were big price declines for light motor trucks and passenger cars.
Measures of inflation have continued to slow in recent months, especially those net of food and energy items that are closely watched by the Federal Reserve. Increasingly slow underlying inflation readings -- the core personal consumption expenditure rose just 1.2% in September --- are a key reason behind the Fed's move to try and stimulate a weak economy via large-scale buying of Treasury securities. Through the aggressive and controversial program, the central bank hopes stronger economic growth will bring inflation back up toward its target range of just below 2.0%.
The increase in producer prices last month was well below expectations. Economists polled by Dow Jones Newswires were expecting a 0.9% increase in the headline figure and a 0.1% rise in the core index of producer prices.
For the 12 months ended in October, the producer price index rose by 4.3%, accelerating from a 4.0% annual increase in September on the back of higher energy prices. The price of oil has recently climbed back to where it was at the start of the financial crisis. The core index, however, increased by just 1.5% year-over-year, the lowest rate since August.
Some Fed officials worried the U.S. could experience a debilitating bout of falling prices and wages like Japan did unless action was taken to charge up the economy. But others are concerned the recent surge in commodity prices could eventually translate into higher consumer prices.
Tuesday's report showed that energy prices rose 3.7% in October from September, their third consecutive increase and the biggest rise since January. Most of the rise was down to higher gasoline prices, which moved up by 9.8%.
Intermediate goods prices rose by 1.2% last month, following a 0.5% increase in September. Meanwhile, prices of raw materials, known as crude goods, rose by 4.3% in October after a 0.5% decline in September.
However, other categories showed significant declines in prices. Light motor truck prices fell by 4.3% last month, while passenger car prices were down 3.0%. Both declines were the sharpest since 2006. Home electronic equipment prices fell by 3.6%. Food prices, meantime, fell by 0.1%, with declines in meat and vegetable prices.
The consumer price index report, out Wednesday, is expected to show inflation rose 0.3% in October after some pass-through of higher food commodity prices at the consumer level. However, the core inflation rate is expected to be very low.
