Dive Brief:
- U.S. producer prices rose last month at the fastest annual rate since November 2022, the Bureau of Labor Statistics said Friday, as Federal Reserve officials signaled a need to raise borrowing costs during a policy meeting early next month.
- The Producer Price Index surged 6.5% during the 12 months through October, the BLS said, noting that during the month alone, prices rose at a more subdued pace of 0.3%. Truck transport of freight last month generated more than 80% of the increase in the cost of services, the BLS said.
- “The key problem we have is inflation,” San Francisco Fed President Mary Daly said Friday. “We really need to get on a path to bring it sustainably down to 2%,” she said, referring to the Fed’s inflation target. “We're going to need to, in all likelihood, raise rates,” Daly predicted.
Dive Insight:
The Fed last month, citing a need to track more data, decided to forgo an increase in borrowing costs after raising the federal funds rate in September by a quarter-point to a range between 3.75% and 4%.
Since the October policy meeting, fresh signals of price pressures have not supported the central bank’s wait-and-see approach.
In addition to the PPI data showing that price pressures expanded across the economy, consumer prices rose 0.4% last month, exceeding forecasts and prolonging a nearly six-year period of inflation persisting above the Fed’s 2% target.
The core Consumer Price Index, which excludes volatile food and energy prices, rose 0.3% for the third straight month, the BLS said Tuesday.
“We’ll need to take actions over time that will ensure that we get inflation back to our 2% goal in a timely manner and on a sustained basis,” New York Fed President John Williams said Thursday.
“We still have work to do … to get monetary policy to the right place.” he said, according to Reuters.
Williams and Daly are just two of several Fed officials who favor an increase in the federal funds rate.
Fed Governor Lisa Cook and Cleveland Fed President Beth M. Hammack dissented from the decision last month not to raise the main rate. They favored a quarter point increase instead.
Fed Governor Christopher Waller on Tuesday — a few hours before the release of the CPI data — said that policymakers should consider raising the benchmark rate by 0.5 percentage points next month if core CPI in October rose 0.3% or more.
Cleveland Fed President Hammack also lined up with Fed officials who lean toward raising borrowing costs.
"My expectations are that we need to move to a restrictive stance of policy to help bring inflation back down to that 2% objective, which is critically important," she said Thursday.
"If we don't, I worry that an inflationary mindset could start taking hold," Hammack said.
The CPI data for October suggest that the so-called core Personal Consumption Expenditures Price Index, which excludes volatile food and energy prices, rose 3.3% in October, Fed Governor Michelle Bowman said on Tuesday.
The central bank considers core PCE the most telling data point for inflation.
“I am seeing signs that inflation pressures are persisting, while labor market conditions appear to be firming,” Bowman said in a speech. “This indicates that there is still work to do to bring inflation closer to 2%,” she said.
