US producer prices report another weak month

Producer prices fell unexpectedly in October. Headline PPI declined 0.4% m/m, below forcast (+0.1%) and consensus (+0.2%) expectations. Core PPI declined 0.3% m/m (consensus: +0.1%). Energy prices were flat in October, and it was services, food, and core goods prices that drove producer prices lower. Goods prices fell 0.4% m/m, mainly as a result of food (-0.8%) and core goods (-0.3%); energy was flat. Services inflation declined 0.3% m/m, the second consecutive fall, and the softness was broadly based. In particular, the trade component fell 0.7%. On a y/y basis, headline PPI declined 1.6%, the lowest reading in the five-year history of the series. Core PPI rose a modest 0.1%.

Headline personal consumption PPI, which is a good indicator of the trend in consumer prices, fell 0.5% m/m (-1.4% y/y, Figure 1), as both goods and services prices fell. The core series (excluding food and energy) declined more modestly, at 0.1% m/m (+0.5% y/y).

"We see today's report as indicating downside risks to the path for consumer prices. The decline in core goods PPI supports our view that the recent dollar strength and a slower demand outlook in emerging markets are likely to weigh on core goods CPI and lead to slowing overall core inflation. The recent declines in services prices warrant close monitoring, however, as this slowdown in pipeline prices appears to go against the strength in consumer demand", says Barclays.