Producer Prices Fall by Record 2.8% in October

U.S. producer prices fell a record 2.8 percent in October as energy prices slid, government data on Tuesday showed, but a measure of core inflation at the farm and factory gate rose more than forecast.

AP

The Labor Department said the producer price index recorded its third consecutive monthly reduction after a 0.4 percent fall in September and a 0.9 percent retreat in August.

Slowing economic growth has sharply depressed world commodity prices including oil, and raised alarm among central banks that a general deflation in prices could ensue as advanced economies topple into recession.

Energy prices were down 12.8 percent in October, the largest drop in 22 years, while gasoline fell a record 24.9 percent.

U.S. Treasury bonds pared price gains in longer-dated maturities after the unexpected rise in core PPI, but analysts said a weak economy would quell lingering inflation pressures. See video below for a breakdown of the numbers.

"Clearly the main concern should be one of the economy and slowing growth and that will cure inflation," said David Coard, head of fixed-income sales and trading at Williams Capital in New York.

Analysts polled by Reuters had forecast a 1.8 percent decline in the overall PPI. Over the last year, the producer price index has increased by 5.2 percent, retreating from the 8.7 percent annual pace reported in September.

Core producer prices excluding food and energy costs rose by 0.4 percent in October, versus expectations for a 0.1 percent increase, and were up 4.4 percent over the last 12 months, the steepest increase since 1989.

Core producer prices excluding cars and light trucks rose by a slightly more subdued 0.3 percent last month, a Labor Department official said. Passenger car prices fell 1.7 percent but light motor truck prices advanced by 2.6 percent.

"It should not be a surprise there's some pass-through from energy to the core, but that should fade. There should be increasing slack as the economy weakens," said James O'Sullivan an economist with UBS Securities LLC in Stamford, Conn.

International investors bought a net of $143.4 billion in U.S. securities in September, the biggest capital inflow in nearly three years, the Treasury Department said on Tuesday.

The spike in demand for U.S. securities, which includes short-term instruments such as Treasury bills, came as world credit markets seized up and Lehman Brothers failed. The inflow was enough to cover September's $56.47 billion trade deficit.

The Treasury also revised upward August's net inflow to $21.4 billion from an initially reported $400 million outflow.

Demand for long-maturity securities such as bonds, notes and equities rose to $66.2 billion, compared with an upwardly revised $21 billion in August.

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