WASHINGTON: US producer prices increased by the most in six months in October, lifted by gains in the costs of goods and services, further bolstering the Federal Reserve's stance that it will probably not cut interest rates again in the near term.
The report from the Labour Department on Thursday (Nov 14) showed healthcare costs accelerated last month, with the cost of outpatient care at hospitals posting its largest rise since 2009. The jump in healthcare prices mirrored gains reported in October's consumer price index report on Wednesday.
Rising healthcare costs, if sustained, suggest inflation could trend higher, though it is not likely to become troublesome because of a moderation in the pace of rent increases.
The US central bank last month cut rates for the third time this year and signalled a pause in the easing cycle that started in July when it reduced borrowing costs for the first time since 2008. Fed Chair Jerome Powell reiterated that stance in testimony before lawmakers on Wednesday.
The producer price index for final demand rose 0.4 per cent last month, the biggest increase since April, after falling 0.3 per cent in September.
In the 12 months through October, the PPI climbed 1.1 per cent, the smallest increase since October 2016, after advancing 1.4 per cent in the 12 months through September.
Annual producer inflation retreated as last year's hefty gain dropped out of the calculation.
Economists polled by Reuters had forecast the PPI would rise 0.3 per cent in October and climb 0.9 per cent on a year-on-year basis.
Excluding the volatile food, energy and trade services components, producer prices edged up 0.1 per cent after being unchanged in September.
The so-called core PPI increased 1.5 per cent in the 12 months through October after gaining 1.7 per cent in the 12 months through September. Annual core PPI also slowed last month as last October's increase dropped out of the calculation.
The data came on the heels of a report on Wednesday showing a strong rise in consumer prices in October amid large gains in healthcare costs and prices of used cars and trucks.
The Fed, which has a 2 per cent annual inflation target, tracks the core personal consumption expenditures (PCE) price index for monetary policy. The core PCE price index rose 1.7 per cent on a year-on-year basis in September and has undershot its target this year. October PCE price data will be published later this month.
US stock index futures were trading slightly lower while the dollar was largely unchanged against a basket of currencies. Prices of US Treasuries rose.
LABOUR MARKET STRENGTH
Stabilising inflation follows in the wake of fairly upbeat data on the economy, including better-than-expected job growth in October and an acceleration in services sector activity, which have eased financial market fears of a recession.
There have also been hopeful signs in the 16-year trade war between the United States and China, which has pressured business investment and manufacturing.
Though another report from the Labour Department on Thursday showed the number of Americans filing claims for unemployment benefits rose to a five-month high last week, that likely does not signal a shift in labour market conditions as claims for several states were estimated because of Monday's holiday.
Initial claims for state unemployment benefits increased 14,000 to a seasonally-adjusted 225,000 for the week ended Nov 9, the highest reading since Jun 22, the Labour Department said.
Some of the states, including California, Pennsylvania and Virginia, did not have enough time to process the claims data because of Monday's Veterans Day holiday, leading to them making estimates.
The four-week moving average of initial claims, considered a better measure of labour market trends as it irons out week-to-week volatility, rose only 1,750 to 217,000 last week.
Labour market strength, marked by the lowest unemployment rate in nearly 50 years, is supporting consumer spending and helping to offset some of the hit on the economy from the US-China trade war.
In October, wholesale energy prices rebounded 2.8 per cent after dropping 2.5 per cent in September. They were boosted by a 7.3 per cent surge in gasoline prices, which followed a 7.2 per cent decline in September.
Gasoline accounted for nearly half of the 0.7 per cent increase in goods prices last month. Goods prices fell 0.4 per cent in September.
Wholesale food prices jumped 1.3 per cent in October after rising 0.3 per cent in September. Core goods prices were unchanged last month. They slipped 0.1 per cent in September.
The cost of services increased 0.3 per cent last month after decreasing 0.2 per cent in September. Services were lifted by a 0.8 per cent surge in trade services, which measure changes in margins received by wholesalers and retailers.
The cost of healthcare services accelerated 0.8 per cent in October after gaining 0.3 per cent in the prior month. The cost of hospital outpatient care increased 0.7 per cent last month, the most since July 2009. Inpatient care prices rose 0.6 per cent, the most since October 2018. Those healthcare costs feed into the core PCE price index.
But portfolio management fees, which also go into the calculation of the core PCE price, index fell 0.9 per cent in October after being unchanged in September.