US PPI Down by a Record 2.8% in October - Core PPI up 0.4%

US PPI fell by a record 2.8% in October the Labor Department reported today. Gasoline prices and the first drop in food prices in 8 months contributed heavily to the number.

The 2.8% fall in the Producer Price Index for finished goods was led by a 12.8% drop in Energy prices. This is much worse than the -2.9 and -4.6% seen in the previous 2 months. Foods were also down, by 0.2% on the month. This represents the first decline since February of this year.

On closer inspection we can see that gasoline prices crumbled by 24.9% in October after just a 0.5% decrease a month earlier. Leading the finished consumer foods lower was meat, down by 5.6% versus a 0.6% fall one month previous.

Today’s number leaves the Producer Price Index for the 12 months ended in October at 5.2%, down from last month’s 8.7%. The YoY number peaked at 9.8% in July this year.

US PPI MoM for the last 12 reporting periods

Despite the rapid decline in overall prices for finished goods, the Core number (excluding foods and energy) recorded a 0.4% MoM increase. This is inline with Septembers 0.4% increase, but only half of July’s 0.8% number.

Today’s news has done little to change trader’s view of a large interest rate cut from the Fed in December. It would seem that the markets are far more focused on the negative economic outlook than inflation data.

Currently, interest rate futures are fully pricing in a 0.50% cut in the Federal Funds Rate to 0.50% at the next meeting with a minimal chance of a 0.75% cut.