Summary: US producer price index (PPI) up 0.2% in October, in line with expectations; annual rate rises to 2.4%; “core” PPI up 0.3% over month, up 3.1% over year; Westpac: consistent with headline CPI inflation at target; short-term US Treasury yields rise, longer-term yields fall; rate-cut expectations soften; ANZ: CPI, PPI data signal October PCE data could be firm; services prices up 0.3%, goods prices up 0.1%.
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 then moved well above the long-term average in 2021 and 2022 before falling back over 2023.
The latest figures published by the Bureau of Labor Statistics indicate producer prices increased by 0.2% in October after seasonal adjustments. The rise was in line with expectations but more than September’s 0.1% increase. On a 12-month basis, the rate of producer price inflation after seasonal adjustments accelerated from 1.9% to 2.4%.
Producer prices excluding foods and energy, or “core” PPI, rose by 0.3% after seasonal adjustments. The rise was more than the 0.2% increase which had been generally expected as well as September’s increase of the same amount. The annual growth rate ticked from 3.0% after revisions to 3.1%.
“On an annual basis, the headline PPI is up 2.4% and the core series 3.1%,” said Westpac senior economist Pat Bustamante. “Both pulses are broadly consistent with headline CPI inflation at target.”
Short-term US Treasury bond yields fell on the day while longer-term yields increased. By the close of business, the 2-year Treasury yield had gained 7bps to 4.35%, the 10-year had slipped 1bp to 4.44% while the 30-year yield finished 3bps lower at 4.60%.
In terms of US Fed policy, expectations of a lower federal funds rate in the next 12 months softened, although at least two 25bp cuts are still priced in. At the close of business, contracts implied the effective federal funds rate would average 4.515% in December, 4.42% in January and 4.35% in February. October 2025 contracts implied 3.935%, 65bps less than the current rate.
“October PPI data showed a slight acceleration in price pressures but no imminent reversal of the disinflation process,” said ANZ economist Felix Ryan. “Together with the CPI data the day before, early estimates signal that October PCE data could be firm.”
The BLS stated the rise of the index was mostly attributable to a 0.3% increase in services prices. The final demand goods index rose by 0.1%.
The producer price index 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.
