UPDATED -- A measure of inflation at the wholesale level increased in October, the largest increase since July, according to a new U.S. Labor Department report.

The Producer Price Index increased 0.2% from September, driven by a 0.5% jump in the cost of services -- but goods prices fell 0.4%, the fourth consecutive monthly decline, led by a 3% drop in energy prices. When volatile food and energy prices are removed, the October increase was just 0.1%, translating into a 1.8% annual gain.

The overall monthly hike follows a 0.1% decline in September from the month before and no change for August.

Over the last 12 months producer prices have increased 1.5%, the smallest gain since February. In May, wholesale inflation was at annual rate of 2.1%, before the recent slide in fuel costs.

“An unexpected increase in headline inflation in October, as a rise in service costs, dominated falling prices in goods and energy,” said Lindsey Piegza, chief economist at the investment firm Sterne Agee. “Still, the longer-term trend remains in place, with headline inflation continuing its retreat from the Federal Reserve's 2% target.

"Coupled with modest demand and sluggish international growth, abating price pressures is hardly an equation for policy firming. At this point, the Fed should be on the defensive, hoping weakness abroad doesn't infest or stunt the U.S. recovery.”

Homebuilder Confidence Increasing

Builder confidence in the market for newly built single-family homes rose four points to a level of 58 on the National Association of Home Builders/Wells Fargo Housing Market Index released Tuesday.

A reading above 50 is considered positive while one below 50 is regarded as negative.

All three HMI components increased in November. The index gauging current sales conditions rose five points to 62, while the index measuring expectations for future sales moved up two points to 66 and the index gauging traffic of prospective buyers increased four points to 45.

“Growing confidence among consumers is what’s fueling this optimism among builders,” said NAHB Chairman Kevin Kelly. “Members in many areas of the country continue to see increasing buyer traffic and signed contracts.”

Looking at the three-month moving averages for regional HMI scores, the Northeast rose three points to 44, the South posted a four-point gain to 62, and the West edged up one point to 58. The Midwest registered a two-point loss to 57.

“Low interest rates, affordable home prices and solid job creation are contributing to a steady housing recovery,” said NAHB Chief Economist David Crowe. “After a slow start to the year, the HMI has remained above the 50-point benchmark for five consecutive months, and we expect the momentum to continue into 2015.”

 Updated adds homebuilder information.

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