US producer prices flat in September; details mixed

By Lucia Mutikani

WASHINGTON (Reuters) -U.S. producer prices were unchanged in September as a modest rise in the cost of services was offset by cheaper goods, pointing to a still-favorable inflation outlook and supporting views that the Federal Reserve would cut interest rates again next month.

The unexpected flat reading reported by the Labor Department on Friday followed data on Thursday showing consumer prices increased slightly more than expected last month. But some components that go into the personal consumption expenditures (PCE) price indexes were a bit firmer. The U.S. central bank tracks the PCE price indexes for its 2% inflation target.

"We anticipate a more modest 25 basis points reduction next month," said Paul Ashworth, chief North America economist at Capital Economics. "We still expect underlying price inflation to continue moderating back to target by early next year, but the risks to that view are no longer skewed to the downside."

The unchanged reading in the producer price index for final demand last month followed an unrevised 0.2% gain in August, the Labor Department's Bureau of Labor Statistics said. Economists polled by Reuters had forecast the PPI edging up 0.1%.

In the 12 months through September, the PPI increased 1.8% after climbing 1.9% in August. Consumer prices rose slightly more than expected in September, lifted by higher food costs.

Most economists did not view the uptick in inflation as a sign that price pressures were building up again. Housing inflation cooled considerably in September.

Last month, wholesale services prices increased 0.2% after rising 0.4% in August. They were lifted by a 3.0% jump in deposit services. There were also increases in prices for machinery and vehicle wholesaling as well as furniture retailing, desktop and portable device application software publishing, and apparel wholesaling.

Airline fares rebounded 1.5% after falling 1.0% in August.

Portfolio management fees rose 0.3% after gaining 0.1% in August. The wholesale cost of hotel and motel accommodation increased 1.3% after surging 3.4% in the prior month.

Prices for doctor care were unchanged for the second straight month, while the cost of hospital outpatient care edged up 0.1% after rising 0.7% in August. Hospital inpatient care rose 0.3%. Property and casualty insurance prices jumped 0.9% after climbing 0.3% in August.

GOODS PRICES FALL

Portfolio management fees, healthcare, hotel and motel accommodation and airline fares are among components that go into the calculation of the PCE price indexes.

With the PPI and CPI data in hand, economists estimated that core PCE increased 0.2% in September, with a risk of rounding up to 0.3%, after gaining 0.1% in August.

Still, the core PCE six-month annualized rate of increase was forecast slowing to 2.2% from 2.4% in August, a sign that inflation was on a downward trend. Annual inflation was forecast rising 2.6% after advancing 2.7% in August.

"The latest data won't throw off the Fed's plan to recalibrate policy from a position of economic strength," said Oren Klachkin, financial market economist at Nationwide.

The PPI data also showed trade services, which measure changes in margins received by wholesalers and retailers, rose 0.2% last month. But margins for professional and commercial equipment wholesaling dropped 6.3%.

Wholesale goods prices dropped 0.2% after being unchanged in August. Energy prices declined 2.7% after falling 1.0% in August. Gasoline prices decreased 5.6%.

Food prices shot up 1.0%, though the cost of eggs declined 6.2%. Food prices gained 0.2% in the prior month.

Excluding the volatile food and energy components, goods prices rose 0.2% for the third straight month. The narrower measure of PPI, which strips out food, energy and trade, edged up 0.1% after rising 0.2% in August. The so-called core PPI increased 3.2% year-on-year after advancing 3.3% in August.

The Fed last month cut its policy rate by 50 basis points to the 4.75%-5.00% range. It hiked rates by 525 basis points in 2022 and 2023.

(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Andrea Ricci)