US producer price inflation hits new high in September

Summary: Prices received by US producers (PPI) rise by 0.5% in September, less than expected figure; annual rate increases to 8.6%; “core” PPI increases by 0.2%; annual increase largest since 2010; goods prices up 1.3%, services up 0.2%.

Around the end of 2018, the annual inflation rate of the US producer price index (PPI) began a downtrend which continued through 2019. Months in which producer prices increased suggested the trend may have been coming to an end, only for it to continue, culminating in a plunge in April 2020. Figures returned to “normal” towards the end of that year but recent months’ annual rates have been well above the long-term average.

The latest figures published by the Bureau of Labor Statistics indicate producer prices rose by 0.5% after seasonal adjustments in September. The increase was less than the 0.6% rise which had been generally expected as well as August’s 0.7% increase. On a 12-month basis, the rate of producer price inflation after seasonal adjustments increased from 8.3% to 8.6%.

PPI inflation excluding foods and energy, or “core” PPI inflation, rose by 0.2% after seasonal adjustments, markedly less than the consensus expectation of a 0.5% increase as well as August’s 0.6%. However, the annual rate accelerated again, this time from 6.7% to 6.8%.

Long-term US Treasury bond yields fell modestly on the day. By the end of it, 10-year and 30-year Treasury yields had both shed 2bps to 1.52% and 2.02% respectively. The 2-year yield finished unchanged at 0.36%.

“While slightly lower than expected and lower than the lift in July or August, the annual increase of 8.6% was the largest advance since 12-month data were first calculated in November 2010,” said ANZ economist Kishti Sen.

The BLS stated higher prices for final demand goods accounted for about 80% of the month’s increase after they rose by 1.3% on average. Prices of final demand services rose by 0.2%.

The producer price index (PPI) is a measure of prices received by producers for domestically produced goods, services and construction. It is put together in a fashion similar to the consumer price index (CPI) except it measures prices received from the producer’s perspective rather than from the perspective of a retailer or a consumer. It is another one of the various measures of inflation tracked by the US Fed, along with core personal consumption expenditure (PCE) price data.

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