The Bureau of Labor Statistics reported that producer prices for finished goods fell 0.2 percent in October, its first decline since May. This follows two months of stronger growth in raw material costs – particularly for energy goods – with the producer price index (PPI) up 1.7 percent and 1.1 percent in August and September, respectively. The reversal in October was largely due to lower energy costs, down 0.5 percent for the month. Food prices rose 0.4 percent.
Core prices, which excludes food and energy costs , also declined by 0.2 percent in October. This helped push the year-over-year core inflation rate to 2.1 percent, down from 2.8 percent six months ago or 2.3 percent in September. This suggests that overall pricing pressures continue to ease and remain modest overall, and they are near the Federal Reserve Board’s key target of 2 percent or less.
Manufacturers have benefited from this easing of inflationary pressures, with the cost of raw materials in the sector also down 0.2 percent. Since October 2011, these costs have risen just 2.5 percent. The largest decline in costs was seen in the petroleum and coal products sector, which was down 2.5 percent on lower per barrel petroleum prices. In contrast, transportation equipment manufacturers had the greatest monthly increase in costs, up 1.2 percent.
Costs for intermediate goods were down 0.1 percent for the month; whereas, crude goods prices were up 0.9 percent. At the crude level, higher costs were attributed to increased natural gas and food and feedstock prices. When you look at core crude goods (excluding energy and food), they were lower (down 1.4 percent) on reduced metals costs.
Chad Moutray is chief economist, National Association of Manufacturers.