Rising costs for services last month drove US wholesale inflation to its highest level in more than five years, government data released on Tuesday showed.
Prices for medications, meats, vegetables and industrial chemicals, as well as the margins on retail fuel and lubricants, all helped push prices northward.
The sign of robust price pressures in the pipeline suggests there might be light at the end of a long tunnel for the US Federal Reserve.
Persistently weak inflation this year has left Fed policymakers at odds over how fast to raise interest rates amid a strong jobs market.
The producer price index (PPI), which tracks changes in the costs of wholesale goods and services, last month rose 0.4 percent from September, the US Department of Labor reported, handily beating analyst expectations of a rise of only 0.1 percent.
However, the index rose 2.8 percent year-on-year, its highest since February 2012 and well above the central bank’s 2 percent inflation target.
While the Fed focuses on a measure of consumer price inflation for its monetary policy decisions, a rising PPI could signal more normal price behavior is ahead if that passes through to retail prices.
Fed Chair Janet Yellen has admitted to some soul-searching in the face of very tame inflation, which she has said the central bank does not fully understand.
Despite that uncertainty, market watchers widely expect the Fed to raise interest rates at its final meeting of the year next month.
Excluding the volatile categories of food and fuel, PPI was up 0.2 percent for the month, and this “core” rate was up 2.3 percent from the same period last year.
The index for energy goods, such as oil and gas, was unchanged for the month.
However, services jumped 0.5 percent, and the report said three-quarters of the increase was due to rising margins for retail fuels and lubricants, a category that can be volatile.
Economists have said there was only a week correlation between PPI and the more important consumer price index (CPI) — due to be published yesterday — which the Fed watches more closely.
Ian Shepherdson of Pantheon Macroeconomics said a rising PPI still suggested pipeline pressures were in store for consumer prices.
“The PPI does not drive the Fed, but policymakers will note the threat to consumer price inflation if PPI inflation continues to rise, as we think likely,” Shepherdson said in a client note.
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