Breaking News

Services boost U.S. producer prices; underlying inflation firming

Economic IndicatorsNov 14, 2017 12:11PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
2/2 © Reuters. Shoppers line up around the block to visit a pop up store featuring fashion by Kanye West in Manhattan, New York 2/2

By Lucia Mutikani

WASHINGTON (Reuters) - U.S. 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.

Tuesday's report from the Labor Department also showed steady gains in underlying producer prices, which supported expectations of a gradual increase in inflation and keep the Federal Reserve on track to raise interest rates in December.

"Reports that inflation is dead or too low are not true in every corner of the economy," said Chris Rupkey, chief economist at MUFG in New York. "It won't be long before producers will be faced with having to raise the prices of consumer goods if inflation continues to percolate here."

The producer price index for final demand increased 0.4 percent last month after a similar gain in September. That lifted the year-on-year increase in the PPI to 2.8 percent, the largest rise since February 2012, from 2.6 percent in September.

Economists had forecast the PPI edging up 0.1 percent last month and increasing 2.4 percent from a year ago. Last month's rise in prices received by the nation's farms, factories and refineries reflected a 0.5 percent surge in the cost of services, mostly margins received by wholesalers and retailers.

Margins for fuels and lubricants retailing soared 24.9 percent, accounting for almost half of the increase in the cost of services last month. Services rose 0.4 percent in September.

The rise in services helped to offset a 4.6 percent drop in the cost of gasoline. Wholesale gasoline prices spiked 10.9 percent in September in the aftermath of Hurricane Harvey, which struck Texas in late August and reduced refining capacity in the Gulf Coast area.

Gasoline prices are falling amid ample crude oil supplies. The strong producer price readings probably did not translate into higher consumer prices in October as the correlation between the PPI and consumer price index has weakened.

Still, firming inflation at the factory gate is likely to be welcomed by Fed officials who have long argued that price pressures were being held back by transitory factors.

The personal consumption expenditures (PCE) price index excluding food and energy inflation measure tracked by the Fed has remained below the U.S. central bank's 2 percent target since mid-2012.

Despite moderate price pressures, the Fed is expected to raise interest rates next month amid cautious optimism that tightening labor market conditions will spur faster wage growth next year. The Fed has hiked rates twice this year.

"While not the primary measure of inflation, the consistent gradual improvement in producer prices over the past two years will be welcomed by Fed officials who, on balance, continue to express confidence in a gradually rising inflation outlook," said Sam Bullard, a senior economist at Wells Fargo (NYSE:WFC) Securities in Charlotte, North Carolina.


Prices for U.S. Treasuries rose, with traders awaiting October's consumer inflation data on Wednesday, which is expected to show a marginal increase in consumer prices. The dollar fell against a basket of currencies. U.S. stocks slipped as declining oil prices hit energy stocks.

Outside services, producer price increases were fairly broad last month. There were increases in the cost of pharmaceutical preparations, fresh and dry vegetables, meat and tobacco. Prices for passenger cars were, however, unchanged in October following the introduction of the 2018 models into the survey.

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. The so-called core PPI increased 2.3 percent in the 12 months through October after advancing 2.1 percent in September.

Core goods prices increased 0.3 percent in October after a similar gain in the prior month. The weakening dollar, which has this year lost 5.4 percent of its value against the currencies of the United States' main trading partners, could gradually lift core producer inflation.

The cost of healthcare services increased 0.3 percent in October after being unchanged in September. Those costs feed into the core PCE price index.

Services boost U.S. producer prices; underlying inflation firming

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email