By Lucia Mutikani
WASHINGTON (Reuters) -U.S. producer prices increased less than expected in October as services fell for the first time in nearly two years, offering more evidence that inflation was starting to subside, potentially allowing the Federal Reserve to slow its aggressive pace of interest rate hikes.
The report from the Labor Department on Tuesday also showed a decline in the cost of goods excluding food and energy, reflecting improved supply chains as well as slowing demand from higher borrowing costs. This supports economists’ views that goods disinflation was underway, helping to curb inflation.
The report followed on the heels of data last week showing consumer prices rose less than expected in October, pushing the annual increase below 8% for the first time in eight months.
“The improvement in the October inflation data, if it persists, supports the Fed’s expectation of a step down in the pace of increases going forward,” said Rubeela Farooqi, chief U.S. economist at High Frequency Economics in White Plains, New York.
The producer price index for final demand rose 0.2% last month. Data for September was revised lower to show the PPI rebounding 0.2% instead of 0.4% as previously reported.
A 0.6% increase in the price of goods accounted for the increase in the PPI last month. Goods prices rose 0.3% in September. Gasoline jumped 5.7%, making up 60% of the rise in goods prices. Food prices rose 0.5%, lifted by fresh and dry vegetables as well as chicken eggs. Excluding food and energy, goods prices dipped 0.1% after being unchanged in September.
In the 12 months through October, the PPI increased 8.0%. That was the smallest year-on-year increase since July 2021 and followed an 8.4% advance in September.
Economists polled by Reuters had forecast the PPI rising 0.4% and advancing 8.3% year-on-year.
Services fell 0.1%, the first decline since November 2020, after rising 0.2% in September. There were decreases in trade services, which measure changes in margins received by wholesalers and retailers. Prices for transportation and warehousing services fell 0.2%.
The costs of portfolio management, long-distance motor carrying, automobile retailing as well as professional and commercial equipment wholesaling also declined.
But prices for hospital inpatient care increased 0.8%. There were also increases in prices for securities brokerage and dealing, apparel wholesaling and airline passenger services.
Services excluding trade, transportation and warehousing increased 0.2%. The rotation of spending back to labor-intensive services and a still-tight jobs market could keep price pressures elevated for a while.
U.S. stocks opened higher. The dollar slipped against a basket of currencies. U.S. Treasury prices rose.
The Fed early this month delivered a fourth consecutive 75-basis-point interest rate hike and said its fight to lower inflation to the U.S. central bank’s 2% target would require borrowing costs to rise further. It, however, signaled it may be nearing an inflection point in what has become the fastest rate hiking cycle since the 1980s.
Excluding the volatile food, energy and trade services components, producer prices rose 0.2% in October. The so-called core advanced 0.3% in September.
In the 12 months through October, the core PPI rose 5.4% after increasing 5.6% in September.
(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Andrea Ricci)
