Producer prices likely fell in October due to lower gasoline costs

Markets Associated Press

The Labor Department reports on U.S. producer price inflation in October. The report, which measures price changes before they reach consumers, will be released Tuesday at 8:30 a.m. Eastern.

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FALLING PRICES: Economists forecast that the producer price index dropped 0.1 percent in October from the previous month, according to a survey by FactSet. The index slipped 0.1 percent in September and was flat in August.

CHEAPER GASOLINE: Gasoline prices have tumbled in recent weeks, reducing inflationary pressures. In the September producer prices report, wholesale gas costs declined 2.6 percent.

Ongoing declines in fuel prices have been a benefit for most Americans. Over the past month, average gas prices nationwide have plunged nearly 8 percent to $2.89 a gallon, according to the AAA Daily Fuel Gauge.

Falling energy costs have restricted inflation in the broader economy. Producer rises increased only 1.6 percent in the 12 months ending in September, a rate substantially lower than the Federal Reserve target.

The Fed targets inflation at about 2 percent to protect against deflation, since falling prices could pull down wages and potentially trigger another recession. At the same time, the Fed target also tries to stop inflation from running so high that it could erode the buying power of consumers and businesses, which could also cause a recession.

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GLOBAL ECONOMY: The recession in Japan and slowing economies in Europe and China have also reduced inflationary pressures, causing the dollar to rise in value against foreign currencies. The stronger dollar often reduces the cost of commodities such as oil that the financial markets price in U.S. currency.

A separate government measure of consumer prices has also been muted, rising just 1.7 percent in the 12 months ended in August.

The relatively low inflation also reflects the modest pay hikes that most Americans have received.

Average hourly pay for non-supervisory workers has risen just 2.2 percent over the past year to $20.70, the Labor Department reported earlier this month. Because wages are barely rising, consumers are reluctant to increase their spending, which keeps inflation in check.