US producer prices show inflation under control: Markets relieved by reduced chance of interest rate rise

NERVOUS financial markets received a reassuring surprise yesterday, with the news that US producer prices fell last month. Latest government figures suggest that despite a strengthening economy, core inflation is well under control - which in turn sharply lessens the chances of an increase in interest rates by the Federal Reserve.

The Labour Department's announcement of a 0.2 per cent decline in the closely watched index was greeted with immediate rises in stock and bond prices on Wall Street, where expectations were of an increase in October of around 0.2 per cent.

Although the outcome was artificially improved by a quirk in the way the department calculates new car prices at the start of a model year, October was the fifth month out of six in which producer prices either fell or held steady. On an annual basis, the index is showing a rise of just 0.4 per cent, compared with 1.6 per cent in 1992.

'This is an excellent result, whichever way you look at it,' said Stephen Roach of the Morgan Stanley investment bank. 'There is no inflationary pressure anywhere in the system.'

Today, however, brings a new test of the market's nerves, with the scheduled release of the consumer price index for last month. Although the CPI too is rising at only a modest rate - 2.7 per cent over the past 12 reporting months - the new 4.3 cents a gallon petrol tax increase, part of last summer's deficit- cutting budget package, is likely to have a big impact.

Most analysts are braced for a CPI rise of perhaps 0.5 per cent in October. But even so, few economists believe this will persuade the Fed to raise short-term rates when its policymaking Open Market Committee meets next week.

A string of encouraging indicators over the past two weeks has begun to convince markets that after a long period of near stagnation, the economy is poised for steady growth of 3 per cent or more, until the end of 1994.

However, next week's crucial congressional vote on the North American Free Trade Association remains a deep worry. Rejection of the proposed agreement linking the US, Canada and Mexico, it is warned, could be taken as a signal that protectionism and economic nationalism are the order of the day. If the notorious Smoot-Hawley tariff bill of 1930 is any precedent, this reasoning runs, last week's wobble on the markets could turn into a collapse.

Suggested Topics
Start your day with The Independent, sign up for daily news emails
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Financial Adviser

£20000 - £60000 per annum: Recruitment Genius: Are you recently QCA Level 4 qu...

SThree: Graduate Recruitment Resourcer

£20000 - £22500 per annum + OTE £30K: SThree: SThree Group have been well esta...

Guru Careers: Application Support Analyst / 1st Line Support

£25 - 30k: Guru Careers: We are seeking an Application Support Analyst / 1st L...

Guru Careers: .NET Developer / Web Developer

£45K - £55K (DOE) + Benefits: Guru Careers: We are seeking a full stack .NET D...

Day In a Page

Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

How a costume drama became a Sunday night staple
Miliband promises no stamp duty for first-time buyers as he pushes Tories on housing

Miliband promises no stamp duty for first-time buyers

Labour leader pushes Tories on housing
Aviation history is littered with grand failures - from the the Bristol Brabazon to Concorde - but what went wrong with the SuperJumbo?

Aviation history is littered with grand failures

But what went wrong with the SuperJumbo?
Fear of Putin, Islamists and immigration is giving rise to a new generation of Soviet-style 'iron curtains' right across Europe

Fortress Europe?

Fear of Putin, Islamists and immigration is giving rise to a new generation of 'iron curtains'
Never mind what you're wearing, it's what you're reclining on

Never mind what you're wearing

It's what you're reclining on that matters
General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband

Chuka Umunna: A virus of racism runs through Ukip

The shadow business secretary on the benefits of immigration, humility – and his leader Ed Miliband
Yemen crisis: This exotic war will soon become Europe's problem

Yemen's exotic war will soon affect Europe

Terrorism and boatloads of desperate migrants will be the outcome of the Saudi air campaign, says Patrick Cockburn
Marginal Streets project aims to document voters in the run-up to the General Election

Marginal Streets project documents voters

Independent photographers Joseph Fox and Orlando Gili are uploading two portraits of constituents to their website for each day of the campaign
Game of Thrones: Visit the real-life kingdom of Westeros to see where violent history ends and telly tourism begins

The real-life kingdom of Westeros

Is there something a little uncomfortable about Game of Thrones shooting in Northern Ireland?
How to survive a social-media mauling, by the tough women of Twitter

How to survive a Twitter mauling

Mary Beard, Caroline Criado-Perez, Louise Mensch, Bunny La Roche and Courtney Barrasford reveal how to trounce the trolls
Gallipoli centenary: At dawn, the young remember the young who perished in one of the First World War's bloodiest battles

At dawn, the young remember the young

A century ago, soldiers of the Empire – many no more than boys – spilt on to Gallipoli’s beaches. On this 100th Anzac Day, there are personal, poetic tributes to their sacrifice
Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves

Follow the money as never before

Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves, reports Rupert Cornwell
Samuel West interview: The actor and director on austerity, unionisation, and not mentioning his famous parents

Samuel West interview

The actor and director on austerity, unionisation, and not mentioning his famous parents
General Election 2015: Imagine if the leading political parties were fashion labels

Imagine if the leading political parties were fashion labels

Fashion editor, Alexander Fury, on what the leaders' appearances tell us about them
Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

The architect of the HeForShe movement and head of UN Women on the world's failure to combat domestic violence