Economy

Producer Prices Refuse to Cooperate Toward the Fed's 2% Inflation Target

Jon C. Ogg

Published: October 8, 2019 9:05 am

Last Updated: January 6, 2020 2:12 am

The Federal Reserve has tried to get inflation closer to its 2% mandate for some time, but the current economy just isn’t allowing it. Lower energy prices and even a drop in services prices are preventing the Fed from reaching its 2% inflation goal.

The U.S. Bureau of Labor Statistics (BLS) reported that the Producer Price Index (PPI) for final demand actually fell by 0.3% on a seasonally adjusted basis during September. The Wall Street Journal was targeting a gain of 0.1%.

The services indexes fell by 0.2% and the prices of final demand goods fell by 0.4% in September. Within services, the index for final demand trade services decreased by 1.0%. The BLS reported that nearly half of the September decline in prices for final demand services can be traced to a 2.7 percentage point drop in the index for machinery and vehicle wholesaling. The index for final demand goods fell by 0.4% in September, after falling by 0.5% in August.

The year-over-year metric is what measures annualized inflation and that rose just 1.4% from September of 2018. That was shown to be the lowest annualized gain in nearly three years.

The core PPI reading, which excludes food, energy and trade services, was flat on the monthly reading and up 1.7% from September of 2018.

Within products, the BLS report said:

Three-fourths of the September decrease in the index for final demand goods can be traced to prices for gasoline, which fell 7.2 percent. The indexes for electric power, iron and steel scrap, basic organic chemicals, fresh and dry vegetables, and light motor trucks also moved lower. Conversely, prices for meats rose 1.9 percent. The indexes for liquefied petroleum gas and pharmaceutical preparations also increased.

Financial markets remained lower on Tuesday morning as the fears continue that trade talks with China will yield little or nothing in the current trade war. Dow Jones industrials futures were down 190 points, and S&P 500 futures were down 20 points at 8:50 a.m. The yield on the 10-year Treasury was last seen at 1.52%, and the yield on the 30-year was just under 2.02%.