On Wednesday, November 15, 2023, the Bureau of Labor Statistics (BLS) released the Producer Price Index (PPI) report for October 2023. The PPI, which measures the average change in selling prices by domestic producers for their output, fell 0.5% in October, seasonally adjusted, after advancing 0.4% in September. The October decline was the largest decrease in final demand prices since a 1.2-percent drop in April 2020.
Cooling inflation together with slowing job and wage growth reinforced expectations that the U.S. central bank’s fastest monetary policy tightening campaign since the 1980s was over. Financial markets are even anticipating a rate cut next May, according to CME Group’s FedWatch tool. Since March 2022, the Fed has hiked its policy rate by 525 basis points to the current 5.25%-5.50% range. Goods prices dropped 1.4% in October, with a 15.3 plunge in gasoline prices accounting for more than 80% of the decline. Goods prices rose 0.8% in September. Food prices fell 0.2%.
The report comes a day after the Labor Department said the consumer price index, which measures prices for goods and services at the consumer level, was unchanged in October from the previous month. That set off an aggressive rally on Wall Street, where sentiment is rising that the Federal Reserve is done raising interest rates and could in fact start cutting in the first half of 2024. For consumers, the easing of inflationary pressures is also a positive sign. Consumers may see some relief in the prices of goods and services, especially in the coming months. However, consumers should still be prepared for some continued inflation, as prices are unlikely to return to pre-pandemic levels anytime soon.
The October PPI report is a positive development for the economy, as it suggests that inflationary pressures are continuing to ease. However, the Fed as mentioned in the FOMC meeting last week is likely to remain cautious in its approach to monetary policy, as it will want to avoid tipping the economy into recession.