Producer Price Inflation Increases Slower than Expected in October

Both headline and core producer prices rose less than expected MoM and YoY. Headline PPI rose +.1% MoM (consensus +.3%) and +6.1% YoY (consensus +6.4%). Core PPI inflation was unchanged MoM (consensus +.2%) and +2.5% YoY (consensus +2.6%). This data doesn't take away from the fact that the actual inflation rates rose year-over-year in October versus September. At 2.5% YoY, core inflation is +.5% higher than the 2% YoY pace of September. Headline inflation rose even more, jumping from 4.4% YoY in September to +6.1% YoY in October.

The subdued gains in PPI inflation indicates that the energy price increases (-.8% MoM) experienced this fall have yet to fully be integrated into producer prices. Notably, producer prices for gasoline fell -3.1% MoM in October, and residential gas prices fell -2.4% MoM. This increases the risk of higher prices appearing in the November data, as most of the recent rise occurred in the second half of the month, and was likely underrepresented in this survey which occurred earlier in the month. Gasoline prices are up 32.4% YoY. Food prices rose +1% MoM in October, and are up 7.1% YoY.

As expected, there was more volatility in car and light truck pricing in October. Passenger car prices rose 1% MoM while light truck prices fell -2.7% MoM. Over the past year, car prices have risen only +.4% YoY and truck prices have grown by +5.1% YoY. Computer prices continue to fall (-1.3% MoM, -22.5% YoY). In total, consumer goods prices at the producer level rose +.1% MoM, and capital equipment prices fell -.1% MoM for the second month in a row. Weak capital equipment spending suggests weak business investment in future growth.

Intermediate goods prices rose a modest +.1% MoM (+5.6% YoY), while crude goods prices rose a very strong +2.4% MoM and 25.7% YoY. Excluding food and energy, crude goods prices still rose near the average of the past three months of +1.4% MoM and are up 18.6% YoY. Crude energy prices rose 5.9% MoM.

Consumer prices are announced tomorrow.