United States: PPI slows in October, Wall Street still anticipates a rate hike

Slight slowdown. U.S. producer prices rose 0.3% in October, slightly less than expected, according to figures released Nov. 13 by the Bureau of Labor Statistics (BLS). The increase over one year, however, reached 6.5%, its highest level since November 2022. US bond yields fell after the publication, while bitcoin was still trading below $70,000.

The PPI increased by 0.3% over one month, compared to 0.4% expected and 1.4% in September after revision.

Over one year, the increase reached 6.5%, compared to 6.6% expected and 6.3% in September.

Excluding food and energy, prices increased by 0.3% over one month and 5% over one year.

Markets still favor a 25 basis point Fed rate hike in December.

The producer price index measures the change in sales prices received by American producers. In October, prices of goods increased by 0.5%, with an increase of 1.3% for food and a slight decline of 0.1% for energy. Prices of services increased by 0.2%, for the fifth consecutive month.

Excluding food and energy, the monthly increase fell from 0.8% to 0.3%, in line with expectations. The BLS also publishes a measure that excludes commercial services margins. This increased by 0.5% over one month, as in September, and by 4.9% over one year. The slowdown in the overall index therefore masks different developments depending on the components.

The publication comes after a better-than-expected consumer price index. The PPI provides information on the upstream pressures that companies can pass on to their customers. The Fed measures its 2% target using the personal consumption expenditure price index, the PCE. Heading into the Dec. 8-9 meeting, contracts tracked by CME FedWatch favored a 25 basis point hike, with about a 15% chance of a 50 point hike.

The yield on two-year U.S. bonds fell from about 4.88% to 4.84% after the release, according to the Wall Street Journal. Lower yields can support risky assets by reducing the relative attractiveness of bond investments. Bitcoin, however, had fallen below $70,000 before the report and was still trading around $69,500 shortly after.