USA producer prices rose more than expected in October, driven by a surge in the cost of services, leading to the biggest annual increase in wholesale inflation in more than 5-1/2 years.
A key gauge of underlying producer price pressures that excludes food, energy and trade services rose 0.2 percent in October month, advancing by the same margin for three straight months.
Producer prices rose faster than economists had expected in October.
"There's this perception that there's a lot of supply waiting in the wings, and as prices have moved higher, that's made the marginal producer want to come out and just find more oil", said Eric Freedman, chief investment officer of U.S. Bank Wealth Management. In September, energy prices had surged, thanks to the impact of Hurricanes Harvey and Irma, but that effect appears to have waned in October.
"The PPI does not drive the Fed but policymakers will note the threat to consumer price inflation if PPI inflation continues to rise, as we think likely", Shepherdson said in a client note.
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The Producer Price Index, which tracks changes in the costs of wholesale goods and services, rose 0.4 per cent in October compared to the prior month, the Labor Department reported, handily beating analyst expectations of a rise of only 0.1 per cent.
Margins for fuels and lubricants retailing soared 24.9 percent, accounting for nearly half of the increase in the cost of services last month.
Excluding the volatile categories of food and fuel, PPI was up 0.2 per cent for the month, and this "core" rate was up 2.3 per cent over October of past year. Excluding volatile food and energy sectors, wholesale prices rose 0.3 in October from September. Pipeline price pressures are expected to improve gradually. PPI is up 0.4% m/m in both the headline and the core numbers.
The cost of healthcare services increased 0.3 percent in October after being unchanged in September.
Core goods increased 0.3%.