US producer prices rise 0.3% in October after 1.4% gain in September

The US Producer Price Index rose 0.3% month on month in October, against an estimate of 0.4%, in data released on November 13. The previous reading was 1.4%, so monthly wholesale price growth slowed sharply from September.

What happened

The Producer Price Index for October increased 0.3% from September. The Labor Department calendar slot put the release at 13:30 UTC, ahead of the US cash open, and the figure is listed among the high-impact US data of the day.

The September reading was 1.4%, a rapid increase by the description of one report. Prices charged by US producers therefore rose less quickly in October than in the prior month. They kept climbing, but at a slower monthly pace.

On a yearly basis, the picture is firmer. One report said producer prices posted their largest annual gain in four years. Another said wholesale inflation over the past year remains well above trend.

Why it matters

They sit upstream of consumer prices, which is why the series draws attention whenever inflation is a policy concern.

The monthly slowdown does not erase the elevated level of prices. The four-year high in the annual figure shows how much prices have built up over twelve months. The gap between the 1.4% in September and the 0.3% in October also shows how much the monthly series can move from one release to the next.

The data also feed the debate on US monetary policy. In that reading, a producer price series that stays high supports the case for further tightening.

Market impact

The release carries two messages. The monthly increase of 0.3% is smaller than the 1.4% recorded a month earlier. The annual figure points the other way, as it stands at a four-year high. Investors therefore received a cooler monthly print and a strong yearly trend in the same report.

Interest rates shape borrowing costs across the economy, so inflation data of this kind matters for the rate-sensitive parts of the market. The expectation of a hike next month is already widely held, according to one report.

The two reports read the same release differently. One stresses that prices rose further and that the annual gain is the largest in four years. The other stresses that the monthly pace cooled from September while the level stays high. Both descriptions rest on the same data, and both are consistent with a 0.3% monthly rise after 1.4%.

What to watch next

The next focus is next month's widely expected rate hike.

Later releases will show whether the October slowdown in producer prices is the start of a trend or a one-month pause after September's 1.4% increase. The annual figure, now at a four-year high, will show whether wholesale inflation stays well above trend or begins to ease.