Producer Prices Sank in September as Gas Costs Drop

Corn is harvested and chopped for silage at High Lawn Farm in Lee, Mass., on Oct. 3, 2019. (Ben Garver/The Berkshire Eagle via AP, File)

(CN) – Lower gasoline costs pushed down wholesale prices in September, another sign of low inflation that is fueling speculation the Federal Reserve will cut interest rates for a third time this year.

The producer price index, which measures inflation before it reaches the consumer marketplace, dropped 0.3% percent last month, the Labor Department reported Tuesday, compared to the 0.1% gain in August.

The increase in wholesale inflation over the past year dropped to 1.4% in September, down from 1.8% the month before.

Government economists attribute the change to a significant drop in gasoline prices, which sank 7.2% last month and accounted for most of the 0.4% decline in goods prices. The wholesale cost of services dropped 0.2%.

Not counting the volatile food, energy and trade services categories, so-called core wholesale prices were unchanged last month and are up 1.7% from this time last year.

Inflation has consistently stayed below the Federal Reserve’s 2% annual target, as the U.S. economy has entered its 11 straight year of expansion.

Tuesday’s report on wholesale prices could mean the central bank will cut interest rates again on Oct. 30, after doing so in late July and again last month.

The Fed’s decision to lower rates this summer for the first time since the start of the recession more than a decade ago was spurred by the persistently low inflation, President Donald Trump’s trade war with China and global growth fears.

The benchmark short-term rate, which influences consumer and business loans from mortgages to credit cards and home equity lines of credit, is now in a range of 1.75% to 2%.

Most analysts do not expect a new trade agreement with China to be finalized this year.

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