US Markets
Wednesday, November 15th, 2023 2:53 pm EDT
Key Points
- Wholesale Prices Decline Significantly: In October, wholesale prices experienced their most substantial drop in 3½ years, with the Producer Price Index (PPI), which measures final-demand costs for businesses, declining by 0.5%. This unexpected decrease, against the Dow Jones consensus of a 0.1% increase, is seen as an indication that the peak of the recent inflation surge may have passed. The monthly decline is noted as the most significant since April 2020.
- Consumer Price Stability and Wall Street Reaction: The Labor Department’s report on the Consumer Price Index (CPI) revealed that consumer prices remained unchanged in October from the previous month. This news triggered an aggressive rally on Wall Street, with growing sentiment that the Federal Reserve might conclude interest rate hikes and potentially start cutting rates in the first half of 2024. Despite this positive market response, the article notes that consumers in October exhibited some sensitivity to prices, as seen in the Commerce Department’s advance retail sales report, which showed a 0.1% decline.
- Factors Influencing Price Movements: The article highlights key factors contributing to the observed price movements. The decline in wholesale prices was primarily driven by a 1.4% slide in the goods index, with 80% of this drop attributed to a significant 15.3% decrease in gasoline prices. On the services side, transportation and warehousing costs increased by 1.5%, while trade services declined by 0.7%. Additionally, the Empire State Manufacturing Survey reported an unexpected increase of 14 points to 9.1, indicating growth in the New York area. However, the report also noted declines in the indexes for employment, prices, and unfilled orders despite gains in inventories and shipments.
In October, wholesale prices experienced their most significant drop in 3½ years, signaling a potential easing of the recent inflation surge. The Producer Price Index (PPI), measuring final-demand costs for businesses, reported a 0.5% decline for the month, contrary to expectations for a 0.1% increase. This marked the most substantial monthly decline since April 2020. On an annual basis, the headline PPI showed a 1.3% increase, down from September’s 2.2%.
The core PPI, excluding food and energy, remained unchanged, falling below the predicted 0.3% increase. When excluding food, energy, and trade services, the index increased by 0.1%. This report followed the Labor Department’s announcement that the Consumer Price Index (CPI), measuring prices for goods and services at the consumer level, remained unchanged in October, triggering a positive reaction on Wall Street amid speculation that the Federal Reserve might halt interest rate hikes and potentially reduce rates in the first half of 2024.
Despite this positive economic indicator, October’s Commerce Department’s advance retail sales report revealed a 0.1% decline, indicating consumer sensitivity to prices. Excluding autos, sales increased by 0.1%, surpassing expectations for an unchanged number. The drop in prices was mainly attributed to goods, with the index sliding by 1.4%. Final demand services prices remained unchanged. The significant drop in goods prices was predominantly driven by a 15.3% decrease in gasoline prices, constituting 80% of the decline.
On the services side, transportation and warehousing costs increased by 1.5%, while trade services declined by 0.7%. Airline passenger services prices saw a notable increase of 3.1%. From the consumer standpoint, the decline in gasoline prices impacted sales at service stations, down by 0.3%. Motor vehicles and parts dealers experienced a 1% decline, while furniture and home furnishing stores reported a 2% drop. Food and beverage, as well as electronics and appliance stores, witnessed increases of 0.6%.
Despite these mixed consumer trends, the control group of retail sales used by the Commerce Department to calculate gross domestic product (GDP) showed a 0.2% gain. Stock market futures remained positive following the report, and Treasury yields also increased.
In other economic news, the Empire State Manufacturing Survey, measuring conditions in the New York area, reported an unexpected increase of 14 points to 9.1, surpassing the estimated -3 reading. This positive figure indicates growth, with gains in inventories and shipments. However, the indexes for employment, prices, and unfilled orders experienced declines according to the report from the New York Federal Reserve.
For the full original article on CNBC, please click here: https://www.cnbc.com/2023/11/15/wholesale-prices-fell-0point5percent-in-october-for-biggest-monthly-drop-since-april-2020.html
