The US Department of Labor announced on Wednesday that wholesale prices in the United States experienced a notable decline last month. The Producer Price Index (PPI), a key indicator measuring inflation before it impacts consumers, registered a 0.5% drop in October compared to September. This marks the first downturn since May and the most significant decline since April 2020.
On a year-over-year basis, wholesale prices exhibited a 1.3% increase, a notable decrease from the 2.2% reported in September and the smallest gain observed since July 2021. Excluding the volatile categories of food and energy costs, often referred to as “core” consumer prices, there was no change from September to October, with a 2.4% rise from the previous year. This year-over-year increase in core producer prices stands as the smallest since January 2021.
The decline in wholesale prices for goods was particularly pronounced, falling by 1.4% from September to October. This decline was chiefly propelled by a substantial 15.3% drop in the price of gasoline. Conversely, prices for services remained unchanged during this period.
This significant moderation in inflationary pressure comes on the heels of a year and a half characterized by heightened interest rates. The Federal Reserve (Fed), responding to escalating inflation, implemented 11 benchmark interest rate hikes between March 2022 and July 2023. However, the subsequent rise in borrowing costs has coincided with a sharp deceleration in inflation.
Since reaching an apex of 11.7% in March 2022, year-over-year wholesale inflation has steadily decreased. In its latest report on Tuesday, the Labor Department revealed that the consumer price index (CPI) remained unchanged from September to October, with a 3.2% increase from a year earlier – the smallest year-over-year rise since June.
The Federal Reserve, having refrained from adjusting its benchmark rate since July, has fueled speculation among economists that the rate-hike campaign may have concluded. Matthew Martin of Oxford Economics commented on the recent decline in producer prices, stating, “The Fed will welcome the reprieve … and coupled with yesterday’s CPI report, it bolsters the case for no further rate increases.”
Remarkably, despite the persistent uptick in interest rates, the US economy and job market have demonstrated resilience. The combination of a robust economy and a deceleration in inflation has sparked optimism that the Federal Reserve can achieve a so-called “soft landing” – incrementally raising rates to curb inflation without precipitating an economic recession. This delicate balance is seen as a testament to the nation’s economic stability amid challenging global economic conditions.
Source: AP News
