Wholesale prices drop in October
Trend continues as inflation eases with higher interest rates
WASHINGTON — U.S. wholesale prices fell sharply last month as inflationary pressure continued to ease after a year and a half of higher interest rates.
The Labor Department reported Wednesday that its producer price index — which measures inflation before it hits consumers — dropped 0.5% in October from September, the first decline since May and biggest since April 2020. On a year-over-year basis, producer prices rose 1.3% from October 2022, down from 2.2% in September and the smallest gain since July.
Excluding volatile food and energy costs, so-called core consumer prices were unchanged from September to October and rose 2.4% from a year earlier. The yearover-year gain in core producer prices was the smallest since January 2021.
The wholesale price of goods fell 1.4% from September to October, pulled down by a 15.3% drop in the price of gasoline. Services prices were unchanged.
Inflation last year reached heights not seen in four decades, prompting the Fed to raise its benchmark interest rate 11 times since March 2022.
As borrowing costs have risen, inflation has decelerated sharply. Year-over-year wholesale inflation, for instance, has dropped since hitting 11.7% in March 2022. On Tuesday, the Labor Department reported that its consumer price index was unchanged from September to October and up 3.2% from a year earlier — the smallest year-over-year increase since June. Consumer inflation is still coming in above the Fed’s 2% target.
Despite higher interest rates, the U.S. economy and job market have remained resilient. The combination of a sturdy economy and decelerating inflation has raised
hopes that the Fed can manage a so-called soft landing — raising rates just enough to tame inflation without tipping the economy into recession.
The Fed hasn’t raised its benchmark rate since July, and many economists believe its rate-increase campaign has ended in the current battle with inflation.
Commenting on last month’s drop in producer prices, Matthew Martin of Oxford Economics said: “The Fed will welcome the reprieve … and coupled with yesterday’s CPI report, it bolsters the case for no further rate increases.”
One reason economists at the Fed and on Wall Street parse the PPI report is because several categories — including those related to portfolio management and within health care — are used to calculate the Fed’s preferred inflation measure, the personal consumption expenditures price gauge.
Prices for air services and a number of health care categories rose, while apparel retailing and portfolio management costs declined.
The slide in gas prices, in particular, helped alleviate wholesale cost pressures. While the cost of labor and many other inputs remain elevated, annual producer price growth has eased since early 2022 amid normalizing supply chains and a broader shift in consumer spending toward services.
Fed Chair Jerome Powell emphasized earlier this month that the central bank is proceeding carefully, while also making clear that he and his colleagues won’t hesitate to tighten policy further if warranted.