Wholesale Prices Decline for the First Time Since May
Key Takeaways
- The Producer Price Index (PPI), a measure of inflation at the wholesale level, showed that prices fell 0.5% in October, lower than the 0.1% inflation increase that economists expected, and below the 0.5% inflation increase in September.
- Year-over-year, the PPI showed a 1.3% increase in prices over last year, while the Core PPI index reading was at 2.9%.
- Today’s inflation plunge is the largest drop in the PPI since April 2020.
- Stock futures moved higher on the news, as the report is another signal that inflation is cooling, coming after yesterday’s surprise better-than-expected drop in the Consumer Price Index (CPI) inflation measurement.
Wholesale prices in October showed the largest drop in more than three years, another signal that inflation may be dropping.
The Producer Price Index (PPI) for October declined for the first time since May, dropping 0.5%, reversing the 0.5% PPI increase in September. It’s the largest drop in PPI since the index showed prices plunging 1.2% in April 2020.
The reading came in lower than analysts’ expectations of a 0.1% increase, mirroring Tuesday’s Consumer Price Index inflation report which also showed a more-than-expected drop in prices.
Today’s report is another economic indicator for Federal Reserve officials who are closely monitoring inflation indexes for signs of slowing price growth. Stocks were up after the news, as investors think it’s more likely that the Fed has enough evidence to stop its campaign of inflation-fighting interest rate hikes.
Unlike the CPI report, which looks at the prices that consumers pay at stores, the PPI looks at the prices that stores pay for goods and services. Wholesale prices can be an indicator that consumers may pay less at the retail level as stores pass on their extra costs or savings.
Core PPI Dips, Lower Gas Prices Help Ease Reading
The core PPI reading, which strips out volatile food and energy prices, showed prices increasing by 0.1%, down from last month’s 0.3% increase. The year-over-year core PPI index was at 2.9% for October, a drop from the upward-revised 3.0% reading in September.
The deflationary reading in PPI was primarily driven by a 6.5% drop in energy demand, as gasoline prices fell 15.3%. The PPI report showed wholesale prices for goods fell 1.4%, while prices for services were unchanged. Airline passenger services rose 3.1% in October, which was balanced by a 2.9% decline in margins for machinery and vehicle wholesaling.