A lack of inflation contributed to the Federal Reserve’s decision last month to refrain from raising US interest rates.
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Projections in the Bloomberg survey for producer prices ranged from a drop of 0.5 percent to a 0.2 percent gain. Services inflation declined 0.4% m/m, the lowest reading since February, and the softness was similarly broad based. Most economists expect it to cut the cash rate another 25 basis points before the end of the year given the tepid inflation rate.
Over the prior year, prices fell 1.1%, more than the 0.8% retreat that was expected.
The energy index fell 4.7 percent in September, with all major component indexes declining. Gasoline dropped 9 percent, the most since January. A rising US dollar makes imports cheaper, also helping keep inflation at bay.
“Today’s reports strengthen our view that the USA economy remains on the right track and should help to bolster the Fed’s confidence that it is getting ever closer to meeting both of its mandates”. This week, two Fed governors, Lael Brainard and Daniel Tarullo, said they were anxious inflation would remain depressed even as the labor market improves. The central bank held off on a rate hike last month, largely because of persistently weak inflation.
Housing costs have been supporting inflation of late. Gasoline costs fell a sharp 16.6 per cent, while food prices slid 0.8 per cent.
Changes in wholesale costs are eventually reflected in the price of consumer goods and services, but the relationship is not exact. The index for all items less food and energy rose 0.2 percent in September.
Other inflation data sets have not been encouraging.
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Excluding volatile food and energy prices, so-called core consumer prices rose 0.2 percent from August and 1.9 percent from September of a year ago.
