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U.S. Producer Inflation Jumps 0.6 Percent, but 12-Month Gain Still Below June Peak

James Hyerczyk
According to the Labor Department, the producer price index which measures price increases before they reach the consumer, jumped 0.6 percent in October after posting a smaller 0.2 percent rise in September. The increase exceeded the 0.2 percent forecast.

The U.S. government reported on Friday that its measure of wholesale inflation in October posted the largest increase in six years. They cited higher gas prices and rising costs for goods such a machinery and critical business equipment as the reasons for the surge.

According to the Labor Department, the producer price index which measures price increases before they reach the consumer, jumped 0.6 percent in October after posting a smaller 0.2 percent rise in September. The increase exceeded the 0.2 percent forecast.

Excluding the volatile food and energy categories, core wholesale prices rose 0.5 percent in October and 2.6 percent from a year earlier.

As a result of the monthly surge producer prices are now up 2.9% in the 12 months ended in October from 2.6% the prior month. However, this was still significantly lower than the seven-year high of 3.4%, reached in June. That was the largest gain since November 2011.

Despite October’s increase, the numbers suggest inflation pressures are tame. It could slow even further given the steep drop in crude oil and gasoline prices in last month.

Friday’s report showed that wholesale gas prices rose 7.6 in October and food costs increased 1 percent.

Consumer Sentiment

A preliminary survey on consumer sentiment for November released on Friday came in slightly above expectations. The University of Michigan’s consumer sentiment index hit 98.3. Economists polled by Refinitiv expected the preliminary read to come in at 98.0, slightly below an October Print of 98.6.

“Consumer sentiment remained virtually unchanged in early November from its October reading,” Richard Curtin, chief economist for the Surveys of Consumers, said in a statement. “The stability of consumer sentiment at high levels acts to mask some important underlying shifts. Income expectations have improved and consumers anticipate continued robust growth in employment, but consumers also anticipate rising inflation and higher interest rates.”

U.S. Wholesale Inventories

U.S. wholesale inventories rose more in September than initially estimated. As reported on Friday, the Commerce Department said wholesale inventories rose 0.4 percent in September, slightly faster than its initial estimate of a 0.3 percent increase.

As a result, inventories rose 5.2 percent year-over-year as of September.

Additionally, inventories other than autos, a measure that goes into the calculation of gross domestic product growth, rose 0.2 percent in September. Wholesale auto inventories rose 1.4 percent. Machinery inventories rose 0.7 percent and stocks of electrical products rose 0.9 percent. Petroleum inventories rose 5.0 percent.

Sales at wholesalers were up 0.2 percent in September after a 0.7 percent increase in August. At September’s sales pace it would take wholesalers 1.26 months to clear shelves, unchanged from August.

With U.S. job and wage growth bolstering domestic demand, businesses are expected to boost stocks of goods, which could underpin production at factories.

FOMC Member Randal Quarles Speaks

Federal Reserve Vice-Chairman Randal Quarles said on Friday the central bank will delay its planned introduction of the “stress capital buffer” or SCB until at least 2020 after feedback from stakeholders.

“When we made our SCB proposal last April, we had aimed to make the SCB final for the 2019 stress test cycle. However, the comments we received have been extensive and thoughtful, have raised issues that require a carefully considered response. While I don’t believe these issues will prevent us from ultimately implementing the SCB, they have flagged certain elements of the regime that could benefit from further refinement. Accordingly, I expect we will adopt a final rule in the near future that will settle the basic framework of the SCB, but re-propose certain elements. To enable this process to run its course, I expect that the first SCB would not go into effect before 2020.”

The SCB is a key element of its annual stress tests that allows the regulator to fail firms on operational grounds. The tool introduced by the Fed in April is being called “far too onerous” by the banks. The changes under consideration are aimed at making the future supervisory and capital regime for banks simpler and more predictable.

This article was originally posted on FX Empire

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