Prices at the wholesale level in October fell by their largest amount in 12 years.
The U.S. Labor Department reported today its Producer Price Index fell 1.6%, an unusually large decline, but this may translate into good news for trucking.
The decline was about four times larger than forecast, and it more than reversed back-to-back gains of 0.4% registered in August and September.
The volatile energy and food sectors accounted for two-thirds of the decline. In addition, much of the drop was due to discounted auto, travel and hotel prices. The huge price cuts by these industries are not sustainable. Expect them to be largely reversed in a few months, and mostly reversed by next spring when the economy is stronger.
But even subtracting these temporary price cuts, inflation still declined several tenths of a percent. Weak worldwide commodity prices account for the balance of the decline. And this will not reverse as quickly.
This is actually good news for freight volume. People buy more when prices decline. Volumes are expected to grow faster than sales revenue in many markets during the next few months.
The October price index is only 0.4% above last October. This is a green light for stimulative economic policy in Washington. Congress can spend and the Fed can reduce interest rates without fear of pushing inflation immediately above 1%.
The weak economy pushed truckload rates down 0.3% in October, but less-than-truckload rates rose 0.3%. LTL carriers are able to adjust rates more quickly to account for changing diesel prices and other cost factors.