Producer Prices Climb on Services Costs

Tim Boyle/Bloomberg News

Wholesale prices in the U.S. unexpectedly increased in October as higher costs for services and food outweighed a slump in energy.

The 0.2% advance in the producer-price index followed a 0.1% drop the prior month, the Labor Department said in Washington. The median estimate in a Bloomberg News survey called for a 0.1% decline.

The highest margins received by retailers of fuel since May 2010 helped push up services costs. At the same time, producer prices rose 1.5 % in the year ended October, the smallest gain in eight months and a sign that slowdowns in global markets are limiting inflation.

“The upside surprise is pretty much entirely in one component of services, and it’s correcting from a below-trend number in September,” said David Sloan, senior economist at 4Cast Inc. in New York, whose projection of a 0.1% monthly rise in the headline index was among the closest in the Bloomberg survey. “The picture’s pretty subdued -- there’s no real sign of inflationary pressure.”

The median estimate was based on a survey of 74 economists. Projections ranged from a drop of 0.4% to a 0.2% advance.

Wholesale prices excluding food and energy rose 0.4% after no change a month earlier. The Bloomberg survey called for a 0.1 % gain. Compared with 12 months earlier, the core index increased 1.8% in the year ended October after a 1.6 % gain.

The cost of services increased 0.5% in October, the most since July 2013, reflecting a record gain in margins received at retailers and wholesalers. At gas stations and other retail fuel vendors alone, margins jumped 26.1%, the most in more than four years and a sign that pump prices are falling less than the wholesale costs of products.

The average price of a gallon of regular unleaded gas was $2.89 on Nov. 16, its lowest level since the end of 2010, according to AAA, the largest U.S. motoring group.

Prices for goods dropped 0.4% last month, the most since April 2013, the report showed. Energy costs decreased 3% last month, the biggest decline since March 2013.

Wholesale food costs climbed 1% as prices of vegetables, eggs and meats increased.

Muted price pressures have allowed Federal Reserve officials to keep interest rates near zero after ending monthly asset purchases in October as the U.S. economy shows more signs of progress.

The personal consumption expenditures index, the Fed’s preferred inflation gauge, rose 1.4% in September from a year earlier and has been short of the Fed officials’ 2% goal since April 2012.

The producer price index reading is one of three monthly inflation gauges from the Labor Department.