The dollar, Wall Street and US treasury bonds leapt immediately as the markets reacted favourably to the figures. In London gilt and share prices followed the US lead with strong gains.
Prices charged for finished goods fell 0.5 per cent in September, substantially more than expected and the biggest monthly fall for more than a year. It took the headline rate of producer price inflation to 1.4 per cent, down from 1.9 per cent in August. Excluding the volatile food and energy components, 'core' producer prices rose 0.1 per cent during the month. They were 1.9 per cent higher in the 12 months to September, the same annual rate as in August.
A 2.9 per cent fall in energy prices was part of the explanation for the improvement in the headline figure. Food prices declined 0.2 per cent because of a record 10.3 per cent drop in coffee prices after sharp increases earlier in the year. Prices charged for passenger cars fell 1.1 per cent.
Coming after statistics last week showing US unemployment in September exactly in line with market expectations, yesterday's price figures helped to calm fears of a rapid build-up in inflation. Matthew Alexy, a bond strategist at CS First Boston in New York, said: 'We still expect the Fed to raise interest rates, but now it will look like an insurance policy rather than a panic reaction.'
Douglas Lee, US economist for NatWest Markets, noted that raw materials and intermediate goods prices were still rising. 'Inflation has moved up a notch, but the Fed can hold off until after the mid-term elections in November,' he said.
Prices paid by producers for their materials fell 1.6 per cent last month, but this was entirely due to lower energy costs. Excluding food and energy, the input prices rose 1.3 per cent and were 13.7 per cent higher than a year earlier.
Bob Melman, an economist at JP Morgan, said: 'The industrial sector is overheating, there's no question. We will see producers putting prices up.'
James Glassman, a money market analyst at Chemical Securities, said: 'Businesses must be facing increasing pressure on their margins. It's just not showing up yet at the retail level.'
The Dow Jones index rose more than 50 points in the first 12 minutes of trading, triggering New York Stock Exchange limits on index-linked trades. But it faded in the last hour, and closed 14.80 points higher at 3,889.95.
Benchmark long treasury bonds initially jumped nearly a full point, falling back as details of the figures were absorbed. The dollar briefly rose above Y100 but closed down on the day.
In London the FT-SE 100 index closed 41.4 higher at 3,141.9, while long gilts rose half a point.
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