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U.S. Producer Prices Show Unexpected Decrease In September

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Producer prices in the U.S. unexpectedly decreased in the month of September, according to a report released by the Labor Department on Tuesday.

The Labor Department said its producer price index for final demand fell by 0.3 percent in September after inching up by 0.1 percent in August. The drop surprised economists, who had expected another 0.1 percent uptick.

The unexpected decrease in producer prices came amid another steep drop in energy prices, which plunged by 2.5 percent in September, matching the nosedive seen in the previous month.

However, excluding the continued plunge in energy prices as well as a modest increase in food prices, core producer prices also slid by 0.3 percent in September after climbing by 0.3 percent in August. Economists had expected core prices to rise by 0.2 percent.

The drop in core prices came as the index for final demand services fell by 0.2 percent in September following a 0.3 percent increase in August.

Prices for trade and transportation and warehousing services both tumbled by 1.0 percent, more than offsetting a 0.3 percent uptick in prices for other services.

The Labor Department said nearly half of the September decline in prices for final demand services can be traced to the index for machinery and vehicle wholesaling, which plummeted by 2.7 percent.

Compared to the same month a year ago, producer prices in September were up by 1.4 percent, reflecting a notable slowdown from the 1.8 percent growth in August.

The annual rate of core producer price growth also slowed considerably to 2.0 percent in September from 2.3 percent in August.

Andrew Hunter, Senior U.S. Economist at Capital Economics, noted core goods prices dipped by 0.1 percent, as a 10 percent tariff imposed on $150 billion of Chinese goods at the start of the month was offset by the depreciation of the Chinese renminbi and more general strength of the U.S. dollar.

"That said, unlike previous round of tariffs which targeted intermediate goods, this latest round includes a far greater share of finished consumer goods," Hunter said.

He added, "As a result, although those tariffs will have little effect on the producer prices figures, they could still result in some notable upward pressure on consumer prices in the September CPI data due on Thursday."

On Thursday, the Labor Department is scheduled to release a separate report on consumer price inflation in the month of September.

Consumer prices are expected to inch up by another 0.1 percent, while core consumer prices are expected to rise by 0.2 percent.

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