United States annual producer inflation misses 6.6% forecast despite rising to 6.5% in October

Coming in marginally below the market forecast of 6.6%, producer inflation in the United States (US) reached 6.5% in October, up from September’s 6.3%. The figures, measured by the change in the Producer Price Index (PPI), were released by the US Bureau of Labor Statistics (BLS) on Friday.

September’s monthly PPI increase was revised to 1.4% from 1.3%, while October recorded a rise of 0.3%.

Excluding Food & Energy, the PPI registered monthly growth of 0.3% and an annual increase of 5%, both in line with analysts’ forecasts.

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How did the US Dollar respond to producer inflation data?

Following a slight decline immediately after the PPI release, the US Dollar (USD) Index was last trading at 103.10, down 0.05% on the day.

Inflation: Frequently asked questions

How is inflation defined?

A rise in the prices of a representative basket of goods and services is measured as inflation. The headline figure is generally reported as a percentage change, both month-on-month (MoM) and year-on-year (YoY). By excluding volatile components such as food and fuel, whose prices can shift with geopolitical developments and seasonal factors, core inflation provides the measure that economists focus on. Central banks also target this measure under their mandate to maintain inflation at a manageable level, typically around 2%.

What does the Consumer Price Index (CPI) measure?

Price changes across a basket of goods and services over time are tracked by the Consumer Price Index (CPI). The index is generally reported in terms of percentage changes on a month-on-month (MoM) and year-on-year (YoY) basis. Central banks target Core CPI, which strips out volatile food and fuel components. A reading above 2% typically leads to higher interest rates, while a reading below 2% usually has the reverse effect. As higher interest rates support a currency, rising inflation generally strengthens it; falling inflation tends to have the opposite effect.

How does inflation affect exchange rates?

A country’s currency tends to gain value when inflation is high and lose value when inflation is low, despite this relationship appearing counter-intuitive. To tackle elevated inflation, the central bank would normally increase interest rates. The higher returns then draw greater inflows of global capital from investors seeking an attractive place to invest their money.

Why does inflation affect Gold prices?

Historically, investors sought Gold during periods of high inflation for its ability to retain value. They still often buy Gold for its safe-haven qualities during severe market turmoil, but this pattern does not hold most of the time. The reason is that central banks respond to high inflation by raising interest rates. For Gold, higher rates are a negative: they raise the opportunity cost of holding the metal rather than an interest-bearing asset or money in a cash deposit account. Conversely, lower inflation generally supports Gold by bringing interest rates down, making the precious metal a more attractive investment alternative.