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.

US Core CPI recorded its smallest MoM increase since February as it crept up by 0.1% in September, the Labor Department reported yesterday.

Core inflation, which strips out food and energy, had been expected to rise by 0.2% MoM. As it stands, third quarter Core CPI registered a 2.7% increase which leaves the un-adjusted 12 month rate at 2.5%.

Core CPI suffered from a 0.6% decline in transportation prices, and smaller declines of 0.1% in housing and apparel. Medical care, recreation and other goods and services registered 0.3, 0.2 and 0.2% gains respectively. The education and communication component was also up, by 0.1%.

Elsewhere the headline Consumer Price Index came in flat at 0.0% for the month of September. This is an improvement on August’s -0.1%. All items CPI still stands at an un-adjusted 4.9% YoY.

The energy index continued to decline in the month of September with a MoM decrease of 1.9%, better than August’s -3.1%. However the index is still up 23.1% on the year.

The cost of food continues to increase, up 0.6% MoM, 6.2% YoY. The food index was helped by food at home (up 0.6%); cereals and bakery products (up 1.1%) and meats, poultry, fish and eggs (up 1.0%).