The PPI, an important indicator of inflation in the US, had its biggest drop since 2020 last month

The Producer Price Index (PPI) in the United States unexpectedly declined in October, recording the largest drop since April 2020 and bringing evidence of declining inflationary pressures across the economy.

PPI fell 0.5% from the previous month, a sharp slowdown mainly due to falling gasoline prices. Excluding food and energy, the so-called PPI core remained unchanged, according to government data released this Wednesday (15). Year-on-year, the overall measure rose 1.3%, while the core saw the smallest annual increase since the start of 2021.

These numbers come a day after a separate government report, the CPI, showed little change in consumer prices over the past month. Additionally, an underlying inflation gauge unexpectedly slowed, prompting the market to scale back bets on further interest rate hikes by the Federal Reserve. What’s more: Government data showed better-than-expected retail sales on Wednesday. Total sales fell in October, but the previous month’s gain was revised to the strongest monthly advance since the start of the year.
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Gasoline

More than 80% of the drop in goods prices was due to a 15.3% drop in the cost of gasoline, the government reports. Service costs, on the other hand, remained stable after six consecutive months of increases. One reason economists at the Fed and Wall Street analyze the PPI report is because several categories, including those related to portfolio management and health, are used to calculate the Fed’s preferred measure of inflation, the stock price index. personal consumption expenses.

Prices for airline services and several healthcare categories increased, while apparel retail and portfolio management costs decreased. Falling gasoline prices, in particular, helped ease wholesale cost pressures. While labor costs and many other inputs remain high, annual producer price growth has been slowing since the start of 2022 as supply chains normalize and a broader shift in consumer spending toward services.

Fed Chairman Jerome Powell emphasized earlier this month that the central bank is proceeding carefully, making clear that he and his colleagues will not hesitate to tighten policy further if necessary.

Excluding food, energy and commercial services, a less volatile PPI measure, prices rose 0.1%, the smallest increase in five months.

Costs of processed goods for intermediate demand, which reflect prices earlier in the production chain, have declined further since May. Excluding food and energy, costs of processed goods for intermediate demand increased only slightly.