US producer prices rose 0.3% in October, with the annual gain reaching 6.5%, the largest since November 2022, as food and transportation costs drove broader inflation.
US producer prices rose moderately in October, with inflation at the factory gate posting its largest annual gain in four years, according to data from the Labor Department's Bureau of Labor Statistics.
The Producer Price Index for final demand rose 0.3% last month after an upwardly revised 1.4% surge in September, the Labor Department's Bureau of Labor Statistics said. Economists polled by Reuters had forecast the PPI climbing 0.4% after a previously reported 1.3% jump in September.
The PPI shot up 6.5% year-over-year in October, the largest annual gain since November 2022, after advancing 6.3% in September.
Producer prices over the month were lifted by a 0.5% rise in goods prices. Food prices vaulted 1.3%, the biggest increase since February, driven by fresh and dry vegetables, chickens, turkeys and beef as well as dairy products, confectionery goods and roasted coffee. Prices for basic organic chemicals increased 3.9%. Energy prices dipped 0.1%, amid a 7.9% decline in diesel fuel. Still, diesel fuel prices soared 115.2% on a year-over-year basis in October.
The artificial intelligence infrastructure buildout is also exerting pressure on inflation. Prices for electronic components and accessories increased 4.2% over the month and accelerated 31.7% on a year-over-year basis. Though electronic computers and computer equipment prices were unchanged, they surged 21.4% in the 12 months through October.
Excluding food and energy, producer goods prices increased 0.5% after gaining 0.3% in September. These so-called core goods prices accounted for more than 60% of the rise in overall producer goods prices last month. Goods prices advanced 10.2% in the 12 months through October, the biggest gain in four years.
Services increased 0.2% after accelerating 1.0% in September. These prices have now risen for five straight months. A 2.0% increase in transportation and warehousing services costs, mostly freight transportation by road, accounted for three-quarters of the rise in services inflation. The cost of transporting freight by trucks accelerated 3.9%.
Prices for fuels and lubricants retailing, health, beauty and optical goods retailing as well as food and alcohol wholesaling increased strongly last month. Hospital outpatient care prices rebounded 0.8%. Hotel and motel room prices increased 2.5%, while the cost of legal services fell 0.2%. Airfares dropped 1.2% even as jet fuel prices rose.
Strong consumer inflation readings together with comments from US central bank Governor Christopher Waller have left financial markets wavering between pricing in a 25-basis-point rate hike in December and leaving room for a half-a-percentage-point increase. Financial markets anticipated another increase in borrowing costs in January, CME's FedWatch tool showed.
The Fed left its benchmark overnight interest rate in the 3.75%-4.00% range last month.
"Fed funds have to end up at least 100 basis points over current inflation metrics to restrain demand, create some slack and stabilize prices," said Carl Weinberg, chief economist at High Frequency Economics. "If we are correct, that promises quite a few 25-basis-point rate hikes in 2027 on top of whatever the committee decides to do at its next meeting."
The October PPI data shows inflation broadening beyond energy goods, with food prices increasing by the most in eight months and transportation costs rising. The annual gain of 6.5% is the largest since November 2022. The data supports the view that the Federal Reserve could continue raising interest rates, with markets weighing a 25-basis-point hike against a larger half-percentage-point increase in December.
Sources
This article was drafted with AI assistance and checked against the sources above. Company claims are reported as claims. Cover image is AI-generated.
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