US PPI for final demand advances 0.2% in October

The Bureau of Labor Statistics' producer price index for final demand rose 0.2% on a seasonally adjusted basis in October, driven by a 0.6% advance in prices for final demand goods.

October's PPI print came in lower than the 0.4% reading expected on the Street, signalling that inflation may be slowing down, and comes hot on the heels of last week's cooler-than-expected consumer price index data.

In comparison to a year ago, producer prices were ahead by 11.1%, down from 12.3% for September and their 19.0% peak gain in March.

Prices for final demand less foods, energy, and trade services advanced 0.2% on the month in October, following a 0.3% rise in September, and for the 12 months ended 31 October, the index for final demand less foods, energy, and trade services increased 5.4%.

The index for final demand services decreased 0.1% - the first decline since moving down 0.2% in November 2020 - as margins for final demand trade services fell 0.5% and the index for fuels and lubricants retailing dropped 7.7%.

Commenting on the latest figures, Ian Shepherdson, chief economist at Pantheon Macroeconomics, recalled Fed vice chair Lael Brainard's two most recent speeches, in which she highlighted the scope for margin compression as a driver of lower inflation.

What Shepherdson termed the Great Margin Recompression, on the back of improving supply conditions, had much further to run, he said.

"Core PPI and the core PCE deflator follow very similar tracks, though the surge in rents this year has driven an unusually large wedge between them.

"But the pace of rent increases has peaked, and our chart suggests that the steep drop we expect to see in core PPI inflation will drag down the core PCE measure faster than markets and the Fed expect."

Reporting by Iain Gilbert at Sharecast.com