Rising Gas Prices Fuel Producer Price Inflation Again in October

A key measure of inflation in prices of goods and services sold by U.S. businesses held steady in October, boosted by rising gasoline prices.

The producer price index rose 0.2 percent in October from September, the Labor Department said Tuesday. This was the second straight month of a 0.2 percent increase after the September from August estimate was revised down from the preliminary report of 0.4 percent.

Forecasters had expected prices to rise by 0.4 percent. The revision of the prior month means that what was initially reported as higher-than-expected inflation in September was actually in line with the 0.2 percent forecast.

It’s been rare over the past 12 months for inflation figures to come in under the consensus estimates. Since last spring, inflation figures have typically come in higher than forecasters thought.

Now that inflation is slowing, forecasts are overshooting. Last week, the Labor Department reported that the consumer price index rose 0.4 percent, lower than the 0.6 percent expected.

The 0.2 percent rate of inflation in September and October matches the average in the two years prior to the pandemic.

The increase in gasoline prices drove the index higher. Services prices fell 0.1 percent, the first decline since November of 2020. Goods prices rose 0.6 percent. Sixty percent of that increase—0.36 of a percentage point of the 0.6 percent increase—was due to the 5.7 percent rise in gasoline prices.
Core producer prices—which exclude foods, energy, and a measure of business margins called “trade services”—rose 0.2 percent in October following a 0.3-percent rise in September, suggesting a slowdown in underlying inflationary pressures. This metric peaked in March at 1.7 percent.

Despite the slowdown, prices are still up a lot year over year. The PPI is up eight percent on a 12-month basis, the lowest since July of 2021. PPI’s 12-month gain peaked in March at 11.7 percent.  In the ten years prior to the pandemic, PPI averaged a 1.7 percent year-over-year gain.

The widely reported PPI numbers come from measures of “final demand” prices, which track what businesses receive for sales to households, businesses, and government that are the consumers of those products and services. The Labor Department also tracks intermediate demand prices, which tracks business-to-business transactions for goods and services further up in the chain of production. Within intermediate demand in October, prices for processed goods declined 0.2 percent, the index for unprocessed goods dropped 11.7 percent, and prices for services rose 0.3 percent. More than half of the increase in the intermediate services measure was attributable to higher interest rates on business loans.