By Greg Robb, MarketWatch
WASHINGTON (MarketWatch) -- Lower costs for energy pushed the U.S. producer price index to drop 0.6% in September, the Labor Department reported Tuesday, in a result that was much lower than analysts' expectations.
Analysts surveyed by MarketWatch had predicted a fall of 0.3% for the month.
Core producer prices, excluding volatile food and energy inputs, fell 0.1% -- also lower than the 0.1% increase expected.
Wholesale prices have fallen in two of the past three months. In August, the headline PPI rate had risen 1.7% on a jump in energy prices, while the core rate had gained 0.2%.
The more closely followed consumer inflation index for September rose 0.2% as the core rate also increased 0.2%. See Economic Report.
Economists generally agreed that the report showed inflation is a non-issue.
"There is no evidence of inflation or of developing inflation pressures anywhere in this report," said Robert Brusca, chief economist at FAO Economics, in a note to clients.
The report should cheer the majority at the Federal Reserve who believe excess capacity allows the central bank to maintain focus on growth.
Treasury prices rose Tuesday, pushing yields down, after the release of the PPI report and a second government report that showed the home-building market remained sluggish in September.
Yields on 10-year notes, (UST10Y 3.33, -0.06, -1.74%) which move inversely to prices, declined 6 basis points to 3.33%. A basis point is 0.01%.
Yields on 2-year notes (UST2YR 0.91, -0.05, -5.03%) declined 3 basis points to 0.94%.
PPI details
In the 12 months through September, producer prices have fallen 4.8%, as opposed to an annualized drop of 4.3% in August. The index was up 9.8% last July.
Minus food and energy, those prices have climbed 1.8% -- the smallest year-over-year gain since July 2007. The core rate peaked at 4.7% last October.
Energy prices fell 2.4% at the wholesale level in September, the data show. Home heating oil fell 9.8%. Gasoline prices fell 5.4%.
Wholesale food prices eased 0.1% last month. Prices for fresh and dry vegetables sank by 0.4%.
The core index was pushed lower by a 1.4% decline in light motor trucks and a 1.4% drop in pet food, the biggest decline since October 1994.
Prices for intermediate goods rose 0.2% on the month, as metal and chemical prices increased.
Some analysts saw the potential stirring of inflation is the core intermediate goods, which have risen for three straight months and rose by 0.9% in September -- the largest gain since July 2008.
Prices for crude goods fell 2.1% and crude energy materials decreased 5.4%.
In other data Tuesday, the Commerce Department said new construction on housing units was essentially flat last month at a seasonally adjusted annual rate of 590,000.
