US PPI beats with 0.4% - EUR/USD slips from the highs

Rising costs for services in October drove US wholesale inflation to its highest level in more than five years according to government data released

Economists said there was only a week correlation between PPI and the more important Consumer Price Index - due out Wednesday - which the Fed watches more closely.

Persistently weak inflation this year has left Federal Reserve policymakers at odds over how fast to raise interest rates amid a strong jobs market.

Producer prices increased 0.4% in October, seasonally adjusted, after growing 0.4% in September, according to the U.S. Bureau of Labor Statistics.

The sign of robust price pressures in the pipeline suggests there may be light at the end of a long tunnel for the USA central bank. Producer prices rose 2.8% for the twelve months ended October 2017, the largest gain since the twelve months ended February 2012.

The US PPI was better than expected at 0.4% vs 0.1% est.

Meanwhile, services PPI was up 0.5 percent sequentially, owing to trade services that rose 1.1 percent and transport and warehousing that rose 0.8 percent.

Core PPI carried expectations of 0.2% m/m (0.4% in September) and 2.3% y/y, up from 2.2% in September.

The personal consumption expenditures (PCE) price index excluding food and energy inflation measure tracked by the Fed has remained below the US central bank's 2 percent target since mid-2012. The 12-month increase was driven by a 7.6 percent jump in energy prices. In September, energy prices had surged, thanks to the impact of Hurricanes Harvey and Irma, but that effect appears to have waned in October. PPI is up 0.4% m/m in both the headline and the core numbers. The weakening dollar, which has this year lost 5.4 percent of its value against the currencies of the United States' main trading partners, could gradually lift core producer inflation. Prices of goods and services rose 0.3 percent and 0.5 percent, respectively.

Healthcare increased 0.3%. The healthcare costs feed into the PCE which is the Fed's favored inflation measure.



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