U.S. producer prices rose in September as the price of gasoline recorded its biggest increase in more than two years amid hurricane-related production disruptions at oil refineries in Texas.
Other data on Thursday showed applications for unemployment benefits dropped to a more than one-month low last week as the boost to claims in Texas and Florida from Hurricanes Harvey and Irma continued to unwind.
While the storms impacted the data, there were signs of underlying strength in both wholesale inflation and the labor market, potentially leaving the Federal Reserve on track to raise interest rates again in December.
The Labor Department said its producer price index for final demand increased 0.4 percent last month after rising 0.2 percent in August. Wholesale prices were also lifted by an increase in the cost of services. In the 12 months through September, the PPI jumped 2.6 percent. That was the biggest gain since February 2012 and followed a 2.4 percent jump in August.
Wholesale gasoline prices soared 10.9 percent in September after increasing 9.5 percent in August. The increase was the largest since May 2015 and accounted for two-thirds of the 0.7 percent rise in the price of goods. The Labor Department said higher energy prices were likely the result of “reduced refining capacity in the Gulf Coast area due to Hurricane Harvey.”
It said Harvey and Irma, which devastated Florida, had “virtually” no impact on the collection of PPI data or survey response rates. Harvey and Irma, which struck in late August and early September, caused the economy to shed jobs last month for the first time in seven years.
The storms have also restrained consumer spending and undercut industrial production, homebuilding and home sales.
Last month’s gasoline-driven surge in the PPI, however, is likely to be temporary amid ample crude oil supplies.
The U.S. dollar .DXY was little changed against a basket of currencies after the data. Prices of U.S. Treasuries pared gains while U.S. stock index futures were trading lower.
CORE INFLATION FIRMING
A key gauge of underlying producer price pressures that excludes food, energy and trade services rose 0.2 percent last month after a similar increase in August. The so-called core PPI increased 2.1 percent in the 12 months through September after climbing 1.9 percent in August.
Inflation has remained relatively low, with the main measure tracked by the Fed retreating further below its 2 percent target in August.
Price pressures remain benign despite the labor market nearing full employment, with the jobless rate at more than a 16-1/2-year low of 4.2 percent. Fed Chair Janet Yellen has said that temporary factors such as one-off price cuts by wireless telephone companies are holding back inflation.
Minutes of the Fed’s Sept. 19-20 meeting published on Wednesday showed a vigorous debate among policymakers over inflation, with “several” expressing concern that “the persistence of low rates of inflation might imply that the underlying trend was running below 2 percent.”
Despite tepid inflation, U.S. financial markets have largely priced in a rate increase for December. The Fed has increased borrowing costs twice this year.
Last month, the cost of services increased 0.4 percent, driven by a rise in margins for final demand trade services, a measurement of changes in margins received by wholesalers and retailers. Services edged up 0.1 percent in August.
The cost of healthcare services was unchanged after advancing 0.3 percent in August. Those costs feed into the Fed’s preferred inflation measure, the personal consumption expenditures (PCE) price index excluding food and energy.
In a second report on Thursday, the Labor Department said initial claims for state unemployment benefits decreased 15,000 to a seasonally adjusted 243,000 for the week ended Oct. 7, the lowest level since late August.
Claims have been declining since surging to an almost three-year high of 298,000 at the start of September as workers displaced by the hurricanes were left temporarily unemployed.
Underscoring the labor market’s underlying strength, claims have now been below the 300,000 threshold, which is associated with a robust labor market, for 136 straight weeks. That is the longest such stretch since 1970, when the labor market was smaller.
The claims report also showed the number of people still receiving benefits after an initial week of aid dropped 32,000 to 1.89 million in the week ended Sept. 30, the lowest level since December 1973.