US wholesale inflation hits 5-year record in October

[WASHINGTON] Rising costs for services in October drove US wholesale inflation to its highest level in more than five years, according to government data released Tuesday.

Prices for medications, meats, vegetables and industrial chemicals as well as the margins on retail fuel and lubricants all helped push prices northward.

The sign of robust price pressures in the pipeline suggests there may be light at the end of a long tunnel for the US central bank.

Persistently weak inflation this year has left Federal Reserve policymakers at odds over how fast to raise interest rates amid a strong jobs market.

The Producer Price Index, which tracks changes in the costs of wholesale goods and services, rose 0.4 per cent in October compared to the prior month, the Labor Department reported, handily beating analyst expectations of a rise of only 0.1 per cent.

Year-over-year, however, the index rose 2.8 per cent, its highest since February 2012 and well above the central bank's two per cent inflation target.

While the Federal Reserve focuses on a measure of consumer price inflation for its monetary policy decisions, a rising PPI could signal more normal price behavior is ahead if that passes through to retail prices.

Fed Chair Janet Yellen has admitted to some soul searching in the face of very tame inflation, which she says the central bank does not fully understand. Despite that uncertainty, market watchers widely expect the Fed to raise interest rates at its final meeting of the year next month.

Excluding the volatile categories of food and fuel, PPI was up 0.2 per cent for the month, and this "core" rate was up 2.3 per cent over October of last year.

The index for energy goods such as oil and gas was unchanged for the month. However, services jumped 0.5 per cent, and the report said three-quarters of the increase was due to rising margins for retail fuels and lubricants, a category which can be volatile.

Economists said there was only a week correlation between PPI and the more important Consumer Price Index - due out Wednesday - which the Fed watches more closely.

And RDQ Economics said in a research note that core CPI and PPI prices trended in opposite directions during the year.

But Ian Shepherdson of Pantheon Macroeconomics said a rising PPI still suggested pipeline pressures were in store for consumer prices.

"The PPI does not drive the Fed but policymakers will note the threat to consumer price inflation if PPI inflation continues to rise, as we think likely," Shepherdson said in a client note.

AFP