Producer price weakness broadly based

Inflation has persistently run below the US central bank’s 2 percent target.

Falling gas prices, in addition to a stronger dollar which lowers the cost of imports, are keeping overall inflation at bay.

Producer prices fell more than expected in September.

On a “core” basis, prices are expected to rise 0.1% on a monthly basis and 1.2% over past year.

The Labor Department says the producer price index, which measures price changes before they reach the consumer, dropped 0.5 per cent last month after being unchanged in August.

The Labor Department added that excluding the volatile categories of food, energy and trade, core prices slid 0.3% month-on-month, compared with a 0.1% gain in August and forecast for an unchanged reading. Although energy prices remained one of the bigger drags, there was softness across goods and services components, as well as the core measure.

Over the prior year, prices fell 1.1%, more than the 0.8% retreat that was expected.

The index for final demand services decreased by 0.4 percent – the largest decline since February. “This morning’s report does nothing to instill said confidence, but rather further bolsters the dovish argument to keep rates lower for longer until price pressures are evident in the economy”, she said.

According to the latest September Federal Open Market Committee meeting minutes, many committee members are beginning to lose confidence in the Fed’s outlook for inflation to reverse course back to their longer-term objective of 2%, said Lindsey Piegza, chief economist at Stifel Fixed Income.