Producer Prices Unexpectedly Fall in October

U.S. producer prices unexpectedly fell in October as the cost of energy and motor vehicles tumbled, according to a government report on Wednesday that showed little inflation pressures in the economy.

The Labor Department said its seasonally adjusted producer price index slipped 0.2 percent last month, the first decline since May, after increasing 1.1 percent in September. It said the data had not been impacted by superstorm Sandy.

Economists polled by Reuters had expected prices at farms, factories and refineries to increase 0.2 percent last month.

Wholesale prices excluding volatile food and energy costs also fell 0.2 percent, the largest fall since October 2010, after being flat in September. Economists had expected core PPI to rise 0.1 percent.

Though food prices pushed higher, the overall tone of the report was consistent with benign inflation pressures as the economy struggles with sluggish demand, indicating the Federal Reserve would stick to its ultra accommodative monetary policy stance for a while to nurse the recovery.

Consumer inflation is currently hovering around the Fed's 2 percent target. The U.S. central bank in September launched a third round of asset purchases, committing to buy $40 billion worth of mortgage-backed securities every month until there is a sustained improvement in the labor market.

It hopes the purchases will drive down borrowing costs.

Overall producer prices last month were depressed by energy costs which fell 0.5 percent as weak gasoline prices offset the an acceleration in residential electricity costs. Gasoline prices fell 2.2 percent after rising 9.8 percent in September.

Food prices rose 0.4 percent after gaining 0.2 percent in September. Prices could stay elevated in the aftermath of a severe drought that pushed up the cost of grain and soybeans.

In the 12 months to October, producer prices increased 2.3 percent after rising 2.1 percent in September.

Outside food and energy, producer prices were pushed down by a sharp drop in the cost of passenger cars and light trucks. Passenger car prices fell 1.6 percent, the most since July 2009, while light truck prices fell 1.5 percent -- the largest drop since October 2010.

Core PPI is volatile in October because of the introduction of new motor vehicle models into the survey. Excluding cars and trucks, core PPI was unchanged.

In the 12 months to October, core producer prices increased 2.1 percent after rising 2.3 percent in September.