US wholesale inflation cooled off in October, reversing a three-month trend that had seen the cost of energy push up prices, according to data released Wednesday by the Bureau of Labor Statistics.
The Producer Price Index, which measures the average price changes that businesses pay to suppliers, fell 0.5% on a monthly basis. It’s the largest monthly drop since April 2020, when the rapidly spreading Covid-19 virus caused a sharp economic contraction.
October’s decline also marks a sharp turnabout from the 0.4% monthly jump in September, when food and energy prices raised the cost of goods: Energy prices fell 6.5% in October from the previous month, with gasoline sinking 15.3%, contributing to a 1.4% drop in goods inflation.
On an annual basis, PPI rose 1.3% for the 12 months ended in October, down from a 2.2% yearly increase in September.
Economists expected PPI to inch up 0.1% from September and rise 1.9% from last year, according to Refinitiv estimates.
When stripping out the volatile food and energy categories, core PPI was unchanged for the month, bringing the yearly increase to 2.4%.
PPI is a closely watched inflation gauge since it captures average price shifts before they reach consumers and serves as a potential signal for the prices that consumers ultimately end up paying.
Wednesday’s PPI marks another positive development in the Federal Reserve’s monthslong campaign to rein in high inflation.
On Tuesday, the October Consumer Price Index showed that US consumer prices were unchanged for the month, contributing to a slowdown in the annual inflation rate to 3.2%. It’s the first time CPI held steady on a monthly basis since July 2022 and was the lowest annual rate since March 2021.
More data on the way
“Producer prices are lower based on falling energy prices, which should keep price gains to a minimum next month as well,” said Chris Rupkey, chief economist at FwdBonds. “Fed officials are getting to keep their cake and eat it too, so far with economic growth and inflation cooling. There is no sign the economy is about to go over the recession cliff, however, so substantive interest rate cuts are going to have to wait for now.”
While the latest readings on both CPI and PPI represent good news for consumers and the Fed, plenty more economic data is due out before the central bank’s next policymaking meeting on December 12-13, said Andrew Butters, associate professor of business economics and public policy at the Indiana University Kelley School of Business.
Fed officials have elected to hold the benchmark interest rate steady during their past two meetings.
“There’s been a lot of promising signs both in the PPI and the CPI report that came out this week,” Butters told CNN. “But I think it would be a little too ambitious to say, ‘Victory for the Fed. We’re all done. Inflation is under control.’”
“There’s still a ways to go,” he said. “The optimistic view of this is that we’ve made a lot of progress — without seeing much in the way of a significant deterioration of the labor market.”
