Key inflation report indicates Fed rate hikes could start to cool prices


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CNN Business

A key measure of inflation, wholesale prices, rose 8% in October from a year earlier, according to the latest report from the Bureau of Labor Statistics.

Although still historically high, this is the smallest increase since July last year and significantly better than expected. It’s the second inflation report this month to show signs of slowing price increases that have plagued the economy.

Economists had expected the producer price index, which measures the prices paid for goods and services before they reach consumers, to show an annual increase of 8.3%, down from from September’s revised 8.4%.

On a monthly basis, producer prices increased by 0.2%, below expectations and even with September’s revised 0.2% increase.

Year-over-year, the core PPI – which excludes food and energy, components whose prices are more subject to market volatility – measured 6.7%, down from September’s revised 7.1% annual increase.

Month-over-month, core PPI prices were flat, the lowest monthly reading since November 2020. In September, the core PPI rose a revised 0.2% from the last month.

Economists had expected the annual and monthly core PPI to measure 7.2% and 0.3%, respectively, according to Refinitiv estimates.

President Joe Biden announced the October PPI report on Tuesday, calling it “more good news for our economy this morning, and more indications that we’re starting to see subdued inflation.”

“Today’s news – that prices paid by businesses moderated last month – comes a week after news that prices paid by consumers also moderated,” Biden wrote on Tuesday. “And, today’s report also showed that food inflation has slowed – a welcome sign for the family’s grocery bills as we head into the holidays.”

For much of this year, the Federal Reserve has sought to rein in decades-high inflation by tightening monetary policy, including making four consecutive unprecedented rate hikes of 75 basis points, or three-quarters of a point. percentage.

The better-than-expected PPI data reflects an economy that has slowed, with supply balancing out further, said Jeffrey Roach, chief economist for LPL Financial.

Costs associated with transportation and warehousing, for example, fell for the fourth straight month, a likely result of an improving global shipping climate, he said. Production costs for new cars fell the most since May 2017, he added.

“Barring geopolitical or financial crises, inflation should continue to decelerate through 2023,” he said in a statement.

Since the PPI captures price changes occurring further upstream, the report is seen by some as a leading indicator of broader inflationary trends and a predictor of what consumers will eventually see at the store level.

“The PPI reading certainly adds more fuel to the fire for those who think we might finally be on a downward inflation trend,” said Mike Loewengart, head of model portfolio construction at Morgan Stanley. , in a press release.

Last week’s consumer price index showed inflation slowing to 7.7% from 8.2% year-on-year for consumer goods, surprising investors and giving Wall Street its strongest impulse since 2020.

The CPI data was “reassuring,” Fed Vice Chairman Lael Brainard said Monday, signaling that rate hikes appear to be settling in, and if economic data continues to show falling inflation, then the central bank could reduce the magnitude or its future rate hikes.

“When you look at the inflation numbers, there’s evidence that we’ve peaked, but are we coming down fast?” Steven Ricchiuto, chief economist of Mizuho Americas, told CNN Business.

Ricchiuto noted that October’s numbers are only a few steps lower than September’s.

“It’s not the kind of thing that tells the Fed to stop tightening rates,” he said. However, “they can tell you [that] you don’t need 75 basis points.

CNN’s DJ Judd and Matt Egan contributed to this report.

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