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US producer prices increase by the most in six months

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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.

[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 Labour Department said on Thursday its 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 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.

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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 September. Annual core PPI also slowed last month as last October's increase dropped out of the calculation.

The data came on the heels of a report on Wednesday showing a strong rise in consumer prices 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.

The US central bank last month cut rates for the third time this year and signaled 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 reiterated that stance in testimony before lawmakers on Wednesday.

Stabilising inflation follows in the wake of fairly upbeat data on the economy, including better-than-expected job growth in October and an acceleration in services sector activity, which have eased financial market fears of a recession. There have also been hopeful signs in the trade war between the United States and China, which has pressured business investment and manufacturing.

In October, wholesale energy prices rebounded 2.8 per cent after dropping 2.5 per cent in September. They were boosted by a 7.3 per cent surge in gasoline prices, which followed a 7.2 per cent decline in September.

Gasoline accounted for nearly half of the 0.7 per cent increase in goods prices last month. Goods prices fell 0.4 per cent in September.

Wholesale food prices jumped 1.3 per cent in October after rising 0.3 per cent in September. Core goods prices were unchanged last month. They slipped 0.1 per cent in September.

The cost of services increased 0.3 per cent last month after decreasing 0.2 per cent in September. Services were lifted by a 0.8 per cent surge in trade services, which measure changes in margins received by wholesalers and retailers.

The cost of healthcare services accelerated 0.8 per cent in October after gaining 0.3 per cent in the prior month. The cost of hospital outpatient care increased 0.7 per cent last month, the most since July 2009. Inpatient care prices rose 0.6 per cent, the most since October 2018. Those healthcare costs feed into the core PCE price index.

They mirrored gains reported in October's CPI report. 

REUTERS