Wholesale prices rose 8.6% year over year in October, tied for highest ever

The Labor Department reported Tuesday that wholesale prices increased 8.6% in October compared to a year earlier, their highest annual rate in nearly 11-year records.
The government's producer index, which is a measure of final demand prices from good producers, increased 0.6% in September, according to Dow Jones estimates. This indicates that inflation pressures continue to be a problem for the U.S. economy. The monthly pace was higher than the 0.5% increase in September.

The index saw 0.4% growth month-over-month, slightly less than the 0.5% estimate, but still a significant increase from September's 0.1% gain. Core producer prices rose 6.2% year-over-year. The records for year-over-year go back to November 2010.

The inflation story was again driven by an increase in demand for goods rather than services. More than 60% of the index's rise was due to price increases for final demand goods. The price of goods rose 1.2%, while services prices increased 0.2%. Construction prices rose 6.6%.

Soaring gasoline prices accounted for one-third of the rise in goods prices, which rose 6.7%. The other side of this ledger saw a 10.3% decline in beef and veal prices. As residential electric power, which is a key driver for inflation, saw its index for light motor trucks move lower.

Services accounted for more than 80%. The price rises in final demand services were mainly due to autos and parts. They increased 8.9%.

Final-demand prices provide a measure of the value of goods produced for personal consumption, capital investments, and government as well as exporting.

This week's key inflation reading is the PPI report. On Wednesday, the Labor Department will release the October consumer prices index. It is expected that it will show a 0.6% monthly rise for all goods. This would translate into a 5.9% annual increase.

Federal Reserve officials closely monitor inflation data. Most policymakers believe that price increases are driven by supply chain shocks related to the pandemic. They expect the situation to improve over the next year, and eventually return to the central bank's 2% annual target.

The Fed acknowledged that inflation pressures have been lingering for longer than expected and last week voted in favor of reducing its monthly bond purchases.

Over the weekend, Goldman Sachs economists noted that inflation overshoots will likely get worse before they get better.

The Fed has been indicating more aggressive interest rate increases than markets have been pricing them in. Citigroup economists predict that the Fed will need to accelerate to $22.5 billion per month its $15 billion per month pace of bond purchases reductions. This would mean that quantitative easing would cease completely in April 2022.

This would allow the Fed increase rates if inflation continues to be a problem.