The Bureau of Labor Statistics reported that producer prices for finished goods were off 0.1 percent in September. This compares to 0.3 percent growth in August. The higher figure in August and lower number in September both corresponded to shifts in food prices, up 0.6 percent and down 1.0 percent, respectively, for the two months. The decline in food costs in September was largely due to lower costs for fresh and dry vegetables, with beef, poultry, dairy and soft drink costs also down for the month.
Finished energy costs were higher in both August and September, up 0.8 percent and 0.5 percent, respectively. Crude energy costs increased 2.0 percent for the months, led by higher crude petroleum prices. Indeed, the price of West Texas intermediate crude oil rose from an average of $95.77 per barrel in June to averages of $106.57 and $106.29, respectively, in August and September. (They have subsequently fallen, with the price closing at $98.68 a barrel yesterday.)
For manufacturers, raw material costs were down 0.5 percent in September, with input prices down 0.2 percent year-over-year. As such, the sector has benefited from the recent deceleration of producer costs, easing pricing pressures.
With that said, there were pockets in the manufacturing industry that did experience some sizable monthly gains in prices. These manufacturers included the following sectors: wood products (up 4.6 percent), leather and allied products (up 4.0 percent), nonmetallic mineral products (up 3.4 percent), paper (up 3.3 percent), apparel (up 2.7 percent), and plastics and rubber products (up 2.4 percent). In most cases, though, raw material costs over the past 12 months have been less volatile, suggesting that these increases are the result of mostly month-to-month shifts.
Overall inflation continues to be very modest, with producer prices up just 0.3 percent on a year-over-year basis. This is down from the 2.5 percent annual pace observed in June. When you exclude food and energy costs, the annual rate of core inflation was just 1.2 percent, unchanged for the past two months.
This news should allow the Federal Reserve to continue its “highly accommodative” monetary policies, with inflationary pressures remaining quite minimal. The Federal Open Market Committee (FOMC) is currently meeting, with a decision expected tomorrow afternoon. The FOMC is not expected to announce any changes to its current policies, and as such, there should be no surprises, unlike the non-taper decision made at its September 17-18 meeting.
Chad Moutray is the chief economist, National Association of Manufacturers.