Annual PPI: Wholesale prices rose in September
Annual PPI – a gauge of wholesale prices – rises to 6.9 percent. But without energy and food, core annual PPI up only 2.5 percent.
U.S. wholesale prices rose at their fastest pace in five months in September as the cost of gasoline surged, but a small gain in core prices suggested the price pressure was unlikely to be sustained.Skip to next paragraph
Subscribe Today to the Monitor
While the jump in gasoline prices was seen as a blip, details of the report on Tuesday pointed to enough inflation pressure to keep the bar high for any further loosening of monetary policy by the Federal Reserve.
``There is no sign of the deflationary pressures that the Fed was worried about a year ago, so the hurdle for further quantitative easing is higher now than it was then,'' said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts.
The Labor Department said its seasonally adjusted index for prices received by farms, factories and refineries increased 0.8 percent last month after being flat in August. Economists had expected prices to increase 0.2 percent.
Stripping out volatile food and energy, the so-called core producer price index (PPI) rose 0.2 percent after inching up 0.1 percent in August. The annual PPI rose at 6.9 percent overall, 2.5 percent for the core PPI.
Economists expect weak domestic and global growth to curb inflation over the next six to 12 months, although they do not see a risk of falling prices. Last November, the Fed launched a $600 billion bond-buying program to combat deflation risks and to help spur the economy.
Data on Tuesday showed the Chinese economy grew at its slowest pace in more than two years in the third quarter, while German investor confidence dropped to its weakest in nearly three years in October.
U.S. financial markets were little moved by the producer price data, with choppy stocks on Wall Street setting the tone. U.S. stocks were marginally higher in early afternoon, while prices for Treasury debt rose. The dollar rose slightly against a basket of currencies.
Gasoline prices jumped 4.2 percent last month, the largest gain since March, after dropping 1 percent in August. Analysts, however, dismissed the spike, saying it was attributable to how the data was adjusted to try to smooth seasonal volatility.
Still, they cautioned that data on Wednesday could show an upside surprise in September consumer prices. The consumer price index likely rose 0.3 percent last month, according to a Reuters survey, after increasing 0.4 percent in August.
``Price pressures aren't as elevated as they had been trend wise, but they have been more persistent than most forecasts had factored in,'' said Jeremy Lawson, an economist at BNP Paribas in New York. ``Inflation will moderate over the course of the next six to 12 months, but that moderation will be more gradual than some people had been hoping for.''
While the Fed focuses primarily on core consumer inflation, economists said signs of pipeline price pressures could leave the U.S. central bank with less room to maneuver as it weighs further options to help the anemic recovery and pull down an unemployment rate stuck above 9 percent.
``The Fed will find it difficult to reach an agreement to introduce another round of quantitative easing with inflation data like these coming against the backdrop of a gradually improving economy,'' said John Ryding, chief economist at RDQ Economics in New York.