Data Snap: Drop In Oct PPI Is Biggest Since 1947
09 Nov 08:39
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October Producer Price Index !Surprise: Yes!
Key Numbers: Oct Sept ! !
PPI Index: -1.6% +0.4% !Trend:Not !
Core Index: -0.5% +0.3% !Inflationary !
Intermediate:-1.5% +0.1% !Consensus: !
!Overall:-0.5%!
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By Joseph Rebello and Phil McCarty
Of DOW JONES NEWSWIRES
WASHINGTON (Dow Jones)--U.S. wholesale prices registered the biggest drop in
at least 54 years in October amid a slump in energy and motor-vehicle prices,
suggesting that inflation risks are vanishing as the economy shrinks.
The Producer Price Index for finished goods fell 1.6%, marking the biggest
drop since the government started the index in 1947, the Labor Department said
Friday. The decline reflected price declines in every major category. The
"core" index, a more stable gauge of inflation because it excludes volatile
food and energy items fell 0.5%, the biggest decline since August of 1993.
Those numbers surprised Wall Street, which expected a 0.5% decline in the
overall index and a 0.1% drop in the core index. But the report is likely to
have little effect on stock prices Friday. Amid signs that terrorist attacks
tipped the economy into recession, investors are already convinced the Fed will
keep cutting interest rates through the end of the year.
The Fed this week cut its key federal funds rate for the 10th time this year,
trimming it by half a percentage point to a 40-year low of 2%. It has
indicated, however, that it is inclined to keep cutting the rate because of
"heighened uncertainty and concerns about a deterioration in business
conditions both here and abroad."
The economy shrank in the third quarter for the first time in eight years,
contracting by 0.4% and bringing to an end the longest expansion in the
country's history. Inflationary pressures have all but vanished as a result.
The government's broadest gauge of price pressures - the price index for
personal consumption expenditures - declined 0.4% in the third quarter. Import
prices, meanwhile, registered the biggest decline in more than 12 years last
month.
Members of the Fed's policymaking Federal Open Market Committee have said
they see no obstacle to further rate cuts as a result. "The relatively low
level of inflation and well-contained inflationary expectations allowed the
committee flexibility to focus on countering the downside risks to the economy
without incurring a significant threat of fostering expectations of higher
inflations," the members said at a meeting on Oct. 2, according to minutes of
the meeting released Thursday.
Most economists, as a result, expect the Fed to lower the funds rate to 1.5%
by early next year. Fed policymakers next meet on Dec. 11 to decide
interest-rate policy.
The Labor Department said disruptions in mail service in Washington, D.C.,
because of anthrax attacks affected its data gathering, although not
significantly. The mail disruptions reduced the PPI survey's response rate to
80% of normal levels. "A review was undertaken to evaluate the impact of lower
response rates on survey estimates," the department said. "None was found."
Energy prices fell 7.7% in October, the biggest drop since August 1989, the
department said. Gasoline prices fell 21.2%, the biggest decline since March
1986. Heating-oil prices fell 20.9%, the biggest decline since February 1990.
Food prices fell fell 0.4%, marking the first decline since July.
Automobile prices registered the biggest decline in 29 years, dropping 4.7%.
Wholesale prices of computers, however, rose 0.2% after declining 6.2% in
September. Prices of prescription drugs were unchanged. Tobacco prices also
were unchanged.
In year-on-year terms, the October producer price report suggested pipeline
inflationary pressures disappearing. Overall prices fell 1.5% in the 12 months
through October, compared with an increase of 1.6% in the year through
September. Core prices rose 0.4% in year-on-year terms.
Inflationary pressures faded further up the production pipeline. Prices of
crude, or unprocessed goods, fell 9.1% after a 4.1% drop in September. Prices
of intermediate goods fell 1.5% after a 0.1% increase in September.
-By Joseph Rebello and Phil McCarty; 202-862-9279; joseph.rebello@dowjones.com
(END) DOW JONES NEWS 11-09-01
08:39 AM |
