Producer Prices Rise, Risking Pressure in Fed’s Favored Gauge

Workers position a pine log for milling at Woodstock Wood sawmill in Saugerties, New York, on April 10, 2024. Photographer: Angus Mordant/Bloomberg.

U.S. producer prices picked up in October, fueled in part by gains in portfolio management costs and other categories that feed into the Federal Reserve’s preferred inflation gauge.The producer price index (PPI) for final demand increased 0.2 percent from a month earlier, after rising a revised 0.1 percent in September, Bureau of Labor Statistics (BLS) data showed Thursday. Compared with a year ago, the PPI rose 2.4 percent. A measure of producer prices excluding volatile food and energy categories climbed 0.3 percent and 3.1 percent from a year ago.The wholesale inflation data follow the more closely watched consumer price index (CPI), which showed on Wednesday that underlying inflation remained stubborn for a third month. Price pressures have largely abated this year, but a lack of headway more recently and the threat of higher tariffs in the incoming Trump administration have added to uncertainty about the path of inflation and interest rates.“We should expect a bit more volatility in producer prices, especially as businesses manage supply chains amid the risk of tariffs,” Jeffrey Roach, chief economist for LPL Financial, said in a note.US Wholesale Prices Accelerate PPI also showed pickups in categories that feed Fed’s preferred inflation gauge (1200×675, AR: 1.78)A separate report Thursday showed applications for unemployment benefits in the United States fell last week to the lowest level since May, signaling there is still a healthy demand for workers after recent storms and strikes.Economists parse the PPI data for categories that feed into the Fed’s preferred inflation measure—the personal consumption expenditures (PCE) price index. One of those is portfolio management fees, which track the stock market. They climbed 3.6 percent, the most in six months. After the report, some economists nudged their forecasts for core PCE inflation up to 0.3 percent—a level suggesting an annual rate that’s well above the Fed’s 2 percent target. The PCE report is due out on November 27.

In the report, airfares were also higher, increasing by the most since the end of 2022. Healthcare categories were mostly stronger, the report showed.Overall, services costs increased 0.3 percent, after a 0.2 percent gain in the prior month. The gain also reflected a pickup in machinery and vehicle wholesaling margins, along with cable and satellite subscriber services.Prices of goods, excluding food and energy, were also 0.3 percent higher in a slight pickup from the prior month. The BLS said an 8.4 percent jump in the cost of carbon steel scrap was a “major factor.”Tempering the overall gain in PPI were declines in wholesale food and energy prices.————————————————————