WASHINGTON (CBS.MW) — U.S. producer prices increased 1.7 percent in October, the fastest rate in 14 years, the Labor Department estimated Tuesday.
Most of the inflation in finished goods prices came from volatile food and energy categories. October’s core PPI rate, which excludes food and energy, rose a more moderate 0.3 percent for the second straight month.
The headline figure stunned Wall Street economists, who were expecting a much milder 0.6 percent gain in the PPI and a 0.2 percent rise in the core rate, according to a survey conducted by CBS MarketWatch.
The PPI, which advanced just 0.1 percent in September, is now up 4.4 percent in the past 12 months, while the core rate is 1.8 percent higher measured over the same interval.
“Fed policymakers will not overreact to the surge in overall producer prices, especially with energy prices having eased in recent weeks,” said Steve Stanley, chief economist for RBS Greenwich Capital. “Above all, the Fed will be focused on consumer prices, which so far have remained in the middle of the Fed’s perceived target range.”
Finished energy prices jumped 6.8 percent in October, including a 17.3 percent rise in wholesale gasoline prices. Similarly, home heating oil prices rose 17.9 percent, while electric power rose 2.3 percent — the biggest gain in nearly 14 years.
Meanwhile, finished food prices increased 1.6 percent, as wholesale vegetable prices skyrocketed 34.2 percent, likely due to the September hurricanes.
The increase in food prices raises the risks of a worse-than-expected consumer price index, which will be released on Wednesday, said Ian Shepherdson, chief U.S. economist for High Frequency Economics.
Much of the damage in the core rate was due to finished capital goods prices, which increased 0.4 percent for the second month in a row. Prices increased 2.7 percent for light motor trucks and 2.7 percent for construction machinery and equipment prices, a 24-year high.
Prices of power transformers also surged, likely an impact of the hurricanes.
Finished consumer goods prices excluding food and energy increased 0.2 percent in October. Passenger car prices fell 1.3 percent as the government implemented quality adjustments for the 2005 model year.
By comparison, price pressures were tamer further back in the production cycle.
Intermediate goods prices rose 0.9 percent in October, yielding a 12-month increase of 9 percent.
Intermediate energy goods prices rose 4.3 percent during October, with core intermediate goods prices gaining by 0.3 percent. However, intermediate food prices fell for the fifth straight month.
At the crude level, prices increased 4.3 percent in October, including a 7.9 percent gain in crude energy prices. Prices for basic industrial materials climbed 5.4 percent, including a 15.4 percent increase in iron and steel scrap.
Rex Nutting is Washington bureau chief of CBS.MarketWatch.com.
