The cost of goods and services leaving US factories and suppliers climbed 6.5% over the twelve months through October, the Bureau of Labor Statistics reported Friday, the largest annual increase in the producer price index since November 2022. The monthly gain was 0.3%, a notch below the 0.4% that economists had expected and a sharp slowdown from an upwardly revised 1.4% jump in September.
The producer price index tracks prices businesses receive for their goods and services before they reach consumers, and is closely watched because changes there often show up later in consumer prices. Final demand goods drove most of October's increase, rising 0.5% for the month, while energy price pressures eased compared with prior months. Core producer prices, which strip out volatile food and energy costs, rose 0.3% in October, down from a hot 0.8% in September, though a narrower measure that also excludes trade services held at an elevated 0.5% gain for a second straight month.
The report lands at a delicate moment for the Federal Reserve, which held its benchmark interest rate steady at 3.75% to 4% at its late October meeting after a long run of increases earlier this year. Inflation running at more than triple the Fed's long-standing 2% target complicates the central bank's task, and the data reinforced market bets that policymakers will raise rates again at their December meeting rather than pause further.
Economists noted that the mix within the report was mixed: a cooler-than-expected headline monthly number offered some reassurance, while the stickiness of core measures and the jump in the annual rate suggested underlying price pressures have not fully faded. Coming one day after Nvidia's leadership shake-up and alongside ongoing Iran-related tensions, the inflation data added another variable for investors and policymakers to weigh heading into the final weeks of the year.
The Fed's December meeting will be the next major test of whether policymakers follow through on market expectations for another rate increase, with additional inflation and employment data due before then.
What is the producer price index and why does it matter?
It measures the prices businesses receive for goods and services before they reach consumers, and is watched closely because it can signal where consumer inflation is headed.
Does this change the outlook for Fed interest rates?
The report reinforced market expectations that the Federal Reserve will raise rates again at its December meeting after holding steady in October.