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US core PPI falls in Oct, largest drop in 4 yrs

WASHINGTON - US core producer prices recorded their largest decline in more than four years in October, underscoring the Federal Reserve’s concerns about the low inflation environment.

The Labor Department said on Tuesday the core Producer Price Index, which excludes food and energy costs, fell 0.6 percent — the biggest drop since July 2006 — after edging up 0.1 percent in September.

Economists polled by Reuters had expected core PPI to gain 0.1 percent in October.

The headline PPI index rose 0.4 percent last month, well below economists’ expectations for a 0.8 percent increase, after gaining 0.4 percent in September.

Concerns that low inflation could spiral into a damaging phase of deflation prompted the Fed this month to ease monetary policy further, a step that will see it buy $600 billion worth of government bonds through the middle of 2011.

“There’s been some questions about whether the Fed might ease off or not and bonds have fallen somewhat in the last few days. This data could go against this somewhat,” said Sean Incremona, an economist at 4Cast in New York.

US stock index futures briefly added to losses, while the dollar fell against the yen. US Treasury debt prices extended gains.

Core PPI in October was depressed by a 4.3 percent drop in the price of light motor trucks, which was the largest since October 2006. Prices for passenger cars also fell 3.0 percent last month, the biggest decline since July 2006.

The fall in vehicle prices likely reflected the annual introduction of new models into the PPI.

In the 12 months to October, core producer prices rose 1.5 percent after increasing 1.6 percent the prior month.

Though sluggish demand is keeping inflation subdued, there are signs the economy is regaining some strength after losing momentum in the summer.

Wal-Mart Stores Inc , the world’s largest retailer on Tuesday posted a higher quarterly profit and raised its full-year earnings forecast, but US same-store sales declined in a sign of the pressure on consumers.

However, Chief Executive Officer Mike Duke said he expected the U.S. performance to improve in the fourth quarter.

Home improvement chain Home Depot Inc also reported results on Tuesday. While its earnings were higher than expected, it softened its full-year sales forecast to reflect the reticence of consumers to take on expensive renovation projects.