The Economy

Producer Prices Dip for 2nd Straight Month

October showed a 0.4% decline in the producer price index, possibly complicating the Federal Reserve's decision to raise interest rates.
Matthew HellerNovember 13, 2015

U.S. producer prices declined for the second straight month in October, a sign of weak inflation that could complicate the Federal Reserve’s decision next month to raise interest rates.

The Labor Department reported Friday that the producer-price index, which measures the prices companies receive for goods and services, fell 0.4%, following September’s 0.5% drop.

Producer prices decreased 1.6% in October from a year earlier, the 10th straight year-over-year decline and the biggest annual fall since the government started publishing the series in 2009. Economists polled by Reuters had forecast the PPI rising 0.2% last month and dropping 1.2% from a year ago.

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As The Wall Street Journal reports, gauges of inflation “have been historically weak this year amid low oil prices, a strong dollar and weak demand abroad.” In October, producer prices for goods fell 0.4%, led by a big drop for light trucks, energy prices were flat and food prices dropped 0.8%.

Federal Reserve officials have said they want to be “reasonably confident” inflation will move toward their 2% target before they raise interest rates. “Weak inflation and signs of slowing consumer spending could complicate the Federal Reserve’s decision next month whether to raise interest rates,” Reuters said.

The Fed’s preferred inflation measure rose just 0.2% in September, and is up only 1.3% in the past year. But earlier this week, Eric Rosengren, president of the Federal Reserve Bank of Boston, struck an upbeat note on the economy, saying he is “reasonably confident” inflation will soon reach 2%.

The Commerce Department said Friday that retail sales rose only 0.1% in October amid a surprise decline in automobile purchases. Economists had forecast sales increasing 0.3%.

“Even though we continue to expect personal spending to remain a key source of support for economic activity this quarter, this report does point to a very weak start to the quarter,” Millan Mulraine, deputy chief economist at TD Securities in New York, told Reuters.