US producer prices post biggest decline in 8 months

An employee builds a window at the Thompson Creek Window Company in Landover, Maryland.
Saul Loeb | AFP | Getty Images

U.S. producer prices in September posted their biggest decline in eight months as the cost of energy products fell for a third straight month, pointing to tame inflation that could argue against an interest rate increase this year.

The Labor Department said on Wednesday its producer price index fell 0.5 percent, the largest drop since January, after being unchanged in August. In the 12 months through September, the PPI fell 1.1 percent after declining 0.8 percent in August.

It was the eighth straight 12-month decrease in the index. Economists polled by Reuters had forecast the PPI slipping 0.2 percent last month and dropping 0.7 percent from a year ago.

A benign inflation environment is one of the obstacles confronting Federal Reserve officials who are contemplating raising rates for the first time in nearly a decade.

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Inflation has persistently run below the U.S. central bank's 2 percent target. In addition to lower oil prices, price pressures also are being suppressed by a strong dollar, which has gained 17.2 percent against the currencies of the United States' main trading partners since June 2014, and weak global demand.

Last month, wholesale energy prices dropped 5.9 percent in September, accounting for two-thirds of the decline in the PPI. Energy prices fell 3.3 percent in August. Wholesale food prices fell 0.8 percent last month after rising 0.3 percent in the prior month.

The volatile trade services component, which mostly reflects profit margins at retailers and wholesalers, fell 0.4 percent in September after rising 0.9 percent in August.

The cost of services fell 0.4 percent, with lower prices for securities brokerage, dealing, investment advise and related services accounting for a quarter of the decline.

A key measure of underlying producer price pressures that excludes food, energy and trade services fell 0.3 percent after edging up 0.1 percent in August. The so-called core PPI was up 0.5 percent in the 12 months through September.