U.S. Wholesale Inflation Drops Sharply in September

Daniel Fowler
October 9, 2019

The producer price index for final demand dropped 0.3 per cent last month, weighed down by decreases in the costs of goods and services, the government said.

President Donald Trump has repeatedly pressured the Federal Reserve to lower USA interest rates, arguing, among other things, that inflation poses no threat even though unemployment is at a 50-year low 3.5%.

The Department of Labor's Producer Price Index fell 0.3 percent in September from a month earlier. Economists had forecast the PPI nudging up 0.1% in September and advancing 1.8% on a year-on-year basis.

The core PPI reading, which excludes food, energy and trade services, was flat on the monthly reading and up 1.7% from September of 2018.

Both Labor Department measures feed into the inflation gauge that the Fed targets, the personal-consumption-expenditures price index, which has been below its 2% goal for most of the decade-long economic expansion. They fell sharply in September, dragging down wholesale energy prices.

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While the unemployment rate dropped to near a 50-year low of 3.5 per cent in September, hiring slowed significantly, with the three-month average gain in private payrolls falling to 119,000 jobs, the smallest since July 2012, from 135,000 in August.

The producer-price index typically tracks the same broad trends as other inflation measures, though it does not always translate into what consumers pay. This tranche, along with the batch that will impact about $160 billion worth of goods in December, more directly targets American consumers.Analysts monitor this report to assess potential price pressures set to show up at the consumer level. The cost of goods fell 0.4% after dropping 0.5% the previous month.

Trade services is also sometimes stripped out to get at core-inflation.

Almost half of the drop in services was attributed to a 2.7 per cent decrease in machinery and vehicle wholesaling. This component of the producer price index does not measure prices received.

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