The Bureau of Labor Statistics reported that producer prices for finished goods dropped 0.2 percent in October, falling for the second straight month. Declining energy prices helped to push costs lower once more. The price of finished energy goods declined 1.5 percent for the month, with gasoline prices off 3.8 percent. Indeed, the price of West Texas intermediate crude fell from $102.36 per barrel on September 30 to $96.29 a barrel on October 31. The producer price index data reflect this decline with energy costs declining at the intermediate and crude levels, as well.
After falling by 1.0 percent in September, the cost of food increased by 0.8 percent in October. The previous month’s decline had been largely driven by reduced prices for fresh and dry vegetables, and the cost of vegetables rebounded somewhat this time. Yet, the bulk of the increase in October stemmed from higher costs for beef and veal, with turkey prices also up significantly. (Happy Thanksgiving!)
For manufacturers, raw material costs were down 0.7 percent in October, with input prices down 0.4 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 their costs. This included the transportation equipment (up 1.6 percent), wood products manufacturing (up 0.8 percent), beverage and tobacco (up 0.7 percent), and textile mills (up 0.5 percent) sectors. The petroleum and coal products sector had a 3.2 percent decline in costs, as discussed above.
On a year-over-year basis, the following sectors have experienced raw material cost increases of two percent or more over the past 12 months: wood products (up 6.7 percent), leather and allied products (up 3.5 percent), paper (up 3.5 percent), nonmetallic mineral products (up 3.0 percent), apparel (up 2.4 percent), and plastics and rubber products (up 2.2 percent) manufacturing.
Overall inflation continues to be extremely 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 1.4 percent, unchanged for the past two months. Such news should serve as further comfort for the Federal Reserve, which continues to debate when to taper its asset purchases but plans to stay with its highly accommodative policies for the foreseeable future.
Chad Moutray is the chief economist, National Association of Manufacturers.