October PPI Rises 0.2%, Supporting Fed Rate Cut Hopes as Inflation and Jobs Steady

Wholesale Price Increase and Unemployment Data Indicate Steady Economic Activity

In October, the U.S. Bureau of Labor Statistics reported a 0.2% increase in the Producer Price Index (PPI), which measures wholesale prices for final demand goods and services. This aligns with expectations and suggests that inflation remains under control, setting the stage for the Federal Reserve to consider another rate cut in December. The annualized increase in wholesale inflation reached 2.4%, slightly higher than recent months, driven primarily by service costs.

October PPI Breakdown

The core PPI, which excludes volatile food and energy prices, increased by 0.3% in October, a slight uptick from September. The annual core inflation rate stands at 3.1%, reflecting higher underlying inflation pressures across a broader range of goods and services. Notably, final demand services, which account for a significant portion of the PPI, rose by 0.3%. Portfolio management fees, which spiked by 3.6%, were a substantial contributor. Other areas of price increases included machinery and vehicle wholesaling, airline services, and outpatient care, signaling rising costs in transportation, healthcare, and equipment sectors.

Conversely, wholesale goods prices increased by just 0.1% as declines in energy and food prices offset some gains. Energy prices fell by 0.3%, and food prices dropped by 0.2%, influenced by significant reductions in liquefied petroleum gas (down 18.1%) and prices for chicken eggs and processed poultry. However, an 8.4% rise in carbon steel scrap and higher prices for meats, vegetables, and diesel fuel added inflationary pressures on goods, indicating mixed price trends within the commodities sector.

Unemployment Data Trends

Labor market indicators showed a slight decline in unemployment claims, pointing to resilient employment conditions. Initial claims for unemployment insurance fell to 217,000 in the week ending November 9, down by 4,000 from the previous week’s total. The four-week moving average dropped to 221,000, suggesting a stable labor market. The insured unemployment rate remained unchanged at 1.2%, with approximately 1.87 million insured unemployed, marking a slight decrease in weekly claims. However, the four-week moving average for insured unemployment climbed slightly to 1,874,500, the highest since November 2021, suggesting a moderate softening in labor market momentum.

Market Outlook

With October’s moderate wholesale price growth and stable labor market conditions, the Federal Reserve may remain cautious on further rate adjustments. Despite some inflationary pressures within core PPI components, the overall inflation rate remains within manageable limits. This stable economic backdrop likely reinforces expectations for a rate cut in December, supporting borrowing conditions and encouraging investment.

Forecast: The economic outlook appears cautiously bullish, underpinned by low unemployment and contained inflation. However, continued monitoring of service and commodity prices is essential to anticipate any inflationary pressures in early 2025.