Companies paid less in October for gas, new cars and other goods, driving down wholesale prices for the first time since June. The report indicates inflation pressures are easing as the cost of oil and other commodities has declined.
The Producer Price Index, which measures price changes before they reach the consumer, dropped 0.3 percent in October, the Labor Department said Tuesday. That follows a rise of 0.8 percent in September. Excluding the volatile food and energy categories, the core index was unchanged for the first time in 11 months.
Falling energy prices drove the overall decline. Wholesale gas prices dropped 2.4 percent, while home heating oil fell 6 percent, the most in over a year.
Food prices ticked up 0.1 percent, after four months of much larger increases. Food and energy prices comprise 40 percent of the index. The cost of chicken, eggs and pork jumped in October, while beef and veal prices fell.
The wholesale cost of cars and pickup trucks fell sharply, reflecting the introduction of new models with more features. The government adjusts prices to account for new features, such as anti-lock brakes or GPS devices, that are standard in new models. That usually causes seasonally adjusted auto prices to fall.
Lower prices mean consumers will have more buying power, potentially boosting consumer spending. The jump in gas and food prices limited the ability of consumers to buy other goods, slowing the economy.
Federal Reserve policymakers are also projecting lower inflation next year. That would give the central bank more latitude to hold down interest rates, and potentially take other steps to stimulate the economy. The Fed has kept the benchmark short-term rate it controls at nearly zero for almost three years. If there were signs that inflation was increasing, the Fed would likely raise rates.
The central bank said two weeks ago that it expects inflation to fall from about 2.8 percent this year to roughly 1.7 percent next year. That's in the Fed's preferred range of about 1.7 percent to 2 percent.
A small amount of inflation can be good for the economy. It encourages businesses and consumers to spend and invest money sooner rather than later, before inflation erodes its value
High unemployment, stagnant wages and cautious consumers are also keeping inflation in check. Many retailers are wary of rising prices, even as the cost of raw materials rises, for fear of losing customers.
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