PPI: Headline Up 0.4 Percent; Core Prices Down 0.6 Percent

In October, the Producer Price Index for finished goods rose 0.4 percent for the third straight month. This was the fourth continuous monthly increase in the index. Recent moves in producer prices have largely been dominated be swings in energy prices. Energy product prices rose 3.7 percent in October.

In contrast, the core index, which does not include energy or food product prices, fell by a large 0.6 percent. This was the largest decline in the index since 2006. Much of the decline was due to an adjustment having to do with the year’s new models of cars and light trucks. A similar decline occurred in October of last year. However, this still illustrates very modest levels of underlying inflation in the system and adds to the Fed’s view of inflation being low relative to employment levels.

“The worries of deflation are once again front and center and could soften criticisms of QE2,” said Jim Chessen, Chief Economist for the American Bankers Association.

From a year prior, the core index was up 1.4 percent. The top line index, including all finished products, was 4.3 percent higher from a year prior.