Wholesale Data Suggest Less Inflation

From Bloomberg News

Prices paid to U.S. producers fell last month at the fastest rate in more than three years as industrial output dropped, according to data released Tuesday, suggesting that a slowing economy was starting to cool inflation.

The producer price index decreased 1.3% from August, the Labor Department said in Washington, led by a record decline in gasoline. The so-called core rate, which strips out energy and food, climbed 0.6%, but excluding cars and trucks, rose 0.1%.

Production slid 0.6%, the Federal Reserve said, a retreat that exceeded economists’ forecasts.

Some traders interpreted the figures as making it less probable the Fed would consider resuming interest-rate increases to further reduce inflation pressures. A tame reading on consumer prices today may reinforce speculation that policymakers will keep borrowing costs steady through the start of next year.


“Today’s report means the Fed remains firmly on the sidelines, but their worries may be shifting away from inflation and more towards concern about the economic slowdown,” said Chris Rupkey, economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “After being focused squarely on inflation all this year, they can afford to worry about growth now as well.”

The drop in industrial production last month was the biggest in a year and followed no change a month earlier, the Fed said. Capacity utilization -- the proportion of plants in use -- fell to 81.9%, the lowest since May, from 82.5% a month earlier.

“Manufacturing activity has stalled and with capacity utilization retreating, inflationary pressures should be reduced,” said Steven Wood, president of Insight Economics in Danville, Calif. “This will provide comfort” to the Fed.

Separate data showed that home builder confidence rose this month from a 15-year low. The National Assn. of Home Builders/Wells Fargo index of builder sentiment rose to 31 from a reading of 30 in September. Measures of buyer traffic and market expectations increased this month, the report showed.

The producer price index had been forecast to fall 0.7%, according to a Bloomberg survey of 63 economists. They had forecast drops ranging from 0.1% to 1.3%.

Energy prices fell 8.4% last month, the most since 1986, after rising 0.3% in August. The price of gasoline fell a record 22%.

Prices for passenger cars jumped 2.8%, the most since 1990, after falling 2.6% in August. Costs of light trucks rose 3.5%, the most since 1985.

In a separate report, the Treasury Department said foreign investment in U.S. securities surged to a record $116.8 billion in August as non-U.S. investors stepped up their buying of Treasury debt.