US producer price growth stepped down in October by more than expected in the latest sign that inflationary pressures are beginning to ease.

The producer price index for final demand advanced 8 per cent from a year ago, the smallest annual gain in more than a year, and 0.2 per cent from month earlier, Labor Department data showed on Tuesday (Nov 15). The median estimates in a Bloomberg survey of economists called for a 8.3 per cent annual increase and a 0.4 per cent rise from the prior month.

US stock futures and Treasuries rallied after the report, while the Bloomberg dollar index fell.

Excluding the volatile food and energy components, the so-called core PPI was unchanged in October and rose 6.7 per cent on an annual basis. 

The data come on the heels of a smaller-than-expected monthly increase in the October consumer price index, which investors and Wall Street welcomed as a sign that the fastest price increases in decades are finally be starting to ebb. 

After peaking in March at 11.7 per cent on an annual basis, producer price growth has moderated amid improving supply chains, softer demand and a weakening in many commodities prices. Excluding food and energy, costs of goods declined during the month, and services prices fell for the first time since 2020.

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The Federal Reserve, which is watching all inflation data closely, is anticipated to soon slow the pace of interest rate hikes, though officials have emphasised they remain firmly committed to taming inflation. 

Many companies have successfully passed on much, if not all, of the increases in input and labour costs to consumers, but some companies have recently indicated a hesitation to pursue further aggressive price hikes amid the uncertain economic environment.

Tuesday’s report showed goods prices rose 0.6 per cent, reflecting increases in food and energy. Services prices declined 0.1 per cent, including decreases in trade, transportation and warehousing costs. The Labor Department said a major factor in the decline was due to a drop in fuel retailer margins.

Producer prices excluding food, energy, and trade services – which strips out the most volatile components of the index – increased 0.2 per cent from the prior month. The measure was up 5.4 per cent from a year ago, the smallest advance since May 2021.

Costs of processed goods for intermediate demand, which reflect prices earlier in the production pipeline, fell. Excluding food and energy, those costs slumped 0.8 per cent, the most since the start of the pandemic.

Separate data have also pointed to an easing of cost pressures. The Institute for Supply Management gauge of prices paid for raw materials by manufacturers slipped last month to its lowest reading since May 2020. And wage growth, while still robust, has eased somewhat. BLOOMBERG