The key inflation report suggests the Fed’s rate hikes may be starting to cool prices

The key inflation report suggests the Fed's rate hikes may be starting to cool prices
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CNN business

A key measure of inflation, wholesale prices rose 8% year over year in October, according to the latest Bureau of Labor Statistics report.

Although still historically high, it was the smallest increase since July last year and significantly better than forecasts. It’s the second inflation report this month to show signs of cooling off from the rising prices that have been plaguing the economy.

Economists expected the producer price index, which measures the prices paid for goods and services before they reach consumers, to show an 8.3% annual increase. below from September revised 8.4%.

On a monthly basis, producer prices increased by 0.2%, below expectations and even in line the revised 0.2% increase in September.

Year-over-year, the core PPI — which excludes food and energy, components whose pricing is more vulnerable to market volatility — was 6.7%, down from September’s revised 7.1% annual rise.

On a monthly basis, core PPI prices were flat, the lowest monthly reading since November 2020. In September, the core PPI rose a revised 0.2% mom.

Economists had expected the annual and monthly core PPI to be 7.2% and 0.3%, respectively, according to estimates by Refinitiv.

President Joe Biden announced the October PPI report on Tuesday, calling it “more good news for our economy this morning and more signs that we’re starting to see moderate inflation.”

“Today’s news — that prices paid by businesses have eased over the past month — comes a week after news that prices paid by consumers have also eased,” Biden wrote on Tuesday. “And today’s report also showed that food inflation has slowed – a welcome sign for family grocery bills as we head for the holidays.”

For much of this year, the Federal Reserve has attempted to stem decades of inflation by tightening monetary policy, including issuing an unprecedented four consecutive rate hikes of 75 basis pointsor three quarters of a percentage point.

The better-than-expected PPI data reflects an economy that has been slowing, with supply moving more into balance, said Jeffrey Roach, LPL Financial’s chief economist.

For example, costs associated with transportation and warehousing fell for the fourth straight month, likely due to the improved global shipping climate, he said. Manufacturing costs for new cars have fallen the most since May 2017, he added.

“Barring geopolitical or financial crises, inflation should continue its deceleration into 2023,” he said in a statement.

Because the PPI tracks price changes further upstream, the report is viewed by some as a leading indicator of broader inflation trends and a prediction of what consumers will ultimately see at the store level.

“The PPI reading certainly adds more fuel to the fire for those who think we may finally be on a downward trend in inflation,” Mike Loewengart, Morgan Stanley’s head of model portfolio construction, said in a statement.

Last week’s consumer price index showed a slowdown in inflation to 7.7% of 8.2%y/y for consumer staples, surprising investors and giving Wall Street its biggest boost since 2020.

CPI data was ‘reassuring’ Fed Vice Chairman Lael Brainard said on Mondaysuggesting that rate hikes appear to be taking hold and if economic data continues to show declining inflation, the central bank could scale back the magnitude of its future rate hikes.

“If you look at the inflation numbers, there’s some evidence that we’ve peaked, but are we coming down fast?” Steven Ricchiuto, Mizuho Americas chief economist, told CNN Business.

Ricchiuto noted that October’s numbers are just a few steps lower than September’s.

“These aren’t the things that tell the Fed to stop tightening rates,” he said. However: “Maybe they will tell you [that] You don’t need 75 basis points.”

CNN’s DJ Judd and Matt Egan contributed to this report.

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