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The numbers: The wholesale cost of U.S. goods and services posted the steepest decline in September since the first month of the year, largely reflecting lower gasoline prices and signaling that inflation is likely to remain low.
The producer price index sank 0.3% last month, reversing most of the increase in the prior two months. Economists polled by MarketWatch has forecast a 0.1% gain.
The increase in wholesale inflation over the past 12 months, what’s more, slid to 1.4% from 1.8%, marking the lowest level in almost three years.
Similarly, a more closely followed measure that strips out volatile food, energy and trade-margin costs was flat in September. The increase in the so-called core PPI over the past year dropped to 1.7% from 1.9%.
What happened: Wholesale prices for goods fell 0.4%, with three-quarters of the decline reflecting the lower cost of gasoline. Wholesale food prices rose 0.3%, however.
The cost of services decreased 0.2%, the biggest drop in two and a half years. Wholesale service prices are notoriously volatile, however, and monthly changes generally shouldn’t be taken at face value.
Still, there doesn’t appear to be any inflation building up at earlier stages of the production process. The cost of partly finished goods fell 0.4% in September and they are 3.4% lower over the past 12 months.
Raw-material prices posted even sharper monthly and year-over-year declines, running 10% below September 2018 levels.
Big picture: Inflation has settled slightly below 2% by most price measures and doesn’t appear primed for a big move — up or down — anytime soon.
The low rate of inflation has given the Federal Reserve room to cut interest rates to try to guard the U.S. economy from damage related to the ongoing trade war with China.
Read: China fight seen dragging on through 2020 in threat to economy, Trump reelection
Market reaction: The Dow Jones Industrial Average DJIA, -0.36% and the S&P 500 index SPX, -0.45% were set to decline in Tuesday trades. Stocks have been shaky over the past week amid signs the economy has weakened and rising political tensions in Washington.
The 10-year Treasury yield TMUBMUSD10Y, -2.57% slipped to 1.53%. The yield has tumbled from a seven-year high of 3.23% 11 months ago on growing worries about the economy.