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Wholesale prices soar
Report shows biggest jump since 1990, driven by surge in energy costs.
November 16, 2004: 10:59 AM EST
By Chris Isidore, CNN/Money senior writer
NEW YORK (CNN/Money) - A key inflation gauge soared in October, the government reported Tuesday, as higher energy costs helped fuel the biggest increase in prices at the wholesale level in nearly 15 years.
The producer price index, which measures prices before they reach consumers, jumped 1.7 percent last month from September, when they showed a slim 0.1 percent gain, the Labor Department reported. Economists surveyed by Briefing.com had forecast a 0.6 percent increase. Citigroup's forecast of a 1 percent gain was the highest, according to a Reuters survey.
The so-called core-PPI, which excludes often volatile food and energy prices, rose 0.3 percent, the same as the increase in September, and closer to economists' forecasts. Briefing.com had a consensus forecast of 0.1 percent.
The jump in the overall reading was the biggest since PPI rose 1.9 percent in January 1990, the department said.
The rise means prices at the wholesale level were up 4.4 percent last month from a year earlier, versus a 3.3 percent year-over-year increase in September.
And while energy prices jumped 6.8 percent, but they weren't the only culprit. Food prices rose 1.6 percent.
But it remains to be seen if the jump in wholesale prices works its way through to consumers, with some analysts saying the big jump in the headline number wasn't as bad as it seemed.
"Clearly some of the earlier increases in the price of crude is beginning to percolate through the economy. We knew it was going to happen," said Sung Won Sohn, chief economic officer of Wells Fargo Banks, noting the recent decline in oil prices also suggests that energy costs would not spark renewed inflation.
"I'm reasonably sure we've seen the peak (for oil) and it's beginning to trend down and that should do a lot to decelerate inflation," he said.
Sohn and other economists noted the increase in energy prices was probably working its way through the economy before October, but had not been fully captured accurately until Tuesday's report. The September PPI report, for example, had shown a 0.9 percent decrease in energy prices, despite rising crude oil prices.
Still, concern about inflation is one reason the Federal Reserve has been raising interest rates from artificially low levels, even while most inflation measures had shown prices staying in check.
On Wall Street, stocks fell after the report. And in the Treasury market, bond prices edged lower, pushing the yield on the 10-year note up to 4.21 percent from 4.18 percent late Monday, as traders bet interest rates would rise further. Bond prices and yields move in opposite directions.
Robert Brusca at FAO Economics noted that about two-thirds of the categories outside of food and energy showed actual declines or just modest price increases at the wholesale level last month, and that many of the categories that showed a spike in prices were not seasonally adjusted.
"It's a bad headline and poor core, but it's not as bad as it looks," he said.
Still, the report will mean that the consumer price index report due Wednesday will be watched even more closely than usual.
Economists expect an increase of 0.4 percent overall and a 0.1 percent increase in core CPI, on average. In September, CPI rose just 0.2 percent while the rate excluding food and energy prices rose 0.3 percent.
CPI is the government's main gauge of inflation.
Traders were betting Tuesday's PPI report increased the chance of another Fed rate hike when the central bank's policy-makers meet next month. Fed Funds futures contracts at the Chicago Board of Trade showed about 88 percent of traders were betting on another December rate hike, up from about 84 percent after the Fed raised short-term rates Wednesday. Top of page
Report shows biggest jump since 1990, driven by surge in energy costs.
November 16, 2004: 10:59 AM EST
By Chris Isidore, CNN/Money senior writer
NEW YORK (CNN/Money) - A key inflation gauge soared in October, the government reported Tuesday, as higher energy costs helped fuel the biggest increase in prices at the wholesale level in nearly 15 years.
The producer price index, which measures prices before they reach consumers, jumped 1.7 percent last month from September, when they showed a slim 0.1 percent gain, the Labor Department reported. Economists surveyed by Briefing.com had forecast a 0.6 percent increase. Citigroup's forecast of a 1 percent gain was the highest, according to a Reuters survey.
The so-called core-PPI, which excludes often volatile food and energy prices, rose 0.3 percent, the same as the increase in September, and closer to economists' forecasts. Briefing.com had a consensus forecast of 0.1 percent.
The jump in the overall reading was the biggest since PPI rose 1.9 percent in January 1990, the department said.
The rise means prices at the wholesale level were up 4.4 percent last month from a year earlier, versus a 3.3 percent year-over-year increase in September.
And while energy prices jumped 6.8 percent, but they weren't the only culprit. Food prices rose 1.6 percent.
But it remains to be seen if the jump in wholesale prices works its way through to consumers, with some analysts saying the big jump in the headline number wasn't as bad as it seemed.
"Clearly some of the earlier increases in the price of crude is beginning to percolate through the economy. We knew it was going to happen," said Sung Won Sohn, chief economic officer of Wells Fargo Banks, noting the recent decline in oil prices also suggests that energy costs would not spark renewed inflation.
"I'm reasonably sure we've seen the peak (for oil) and it's beginning to trend down and that should do a lot to decelerate inflation," he said.
Sohn and other economists noted the increase in energy prices was probably working its way through the economy before October, but had not been fully captured accurately until Tuesday's report. The September PPI report, for example, had shown a 0.9 percent decrease in energy prices, despite rising crude oil prices.
Still, concern about inflation is one reason the Federal Reserve has been raising interest rates from artificially low levels, even while most inflation measures had shown prices staying in check.
On Wall Street, stocks fell after the report. And in the Treasury market, bond prices edged lower, pushing the yield on the 10-year note up to 4.21 percent from 4.18 percent late Monday, as traders bet interest rates would rise further. Bond prices and yields move in opposite directions.
Robert Brusca at FAO Economics noted that about two-thirds of the categories outside of food and energy showed actual declines or just modest price increases at the wholesale level last month, and that many of the categories that showed a spike in prices were not seasonally adjusted.
"It's a bad headline and poor core, but it's not as bad as it looks," he said.
Still, the report will mean that the consumer price index report due Wednesday will be watched even more closely than usual.
Economists expect an increase of 0.4 percent overall and a 0.1 percent increase in core CPI, on average. In September, CPI rose just 0.2 percent while the rate excluding food and energy prices rose 0.3 percent.
CPI is the government's main gauge of inflation.
Traders were betting Tuesday's PPI report increased the chance of another Fed rate hike when the central bank's policy-makers meet next month. Fed Funds futures contracts at the Chicago Board of Trade showed about 88 percent of traders were betting on another December rate hike, up from about 84 percent after the Fed raised short-term rates Wednesday. Top of page
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