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US wholesale inflation hits 5-year record in October

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Rising costs for services in October drove US wholesale inflation to its highest level in more than five years, according to government data released Tuesday.

The sign of robust price pressures in the pipeline suggests there may be light at the end of a long tunnel for the US central bank. Persistently weak inflation this year has left Federal Reserve policymakers at odds over how fast to raise interest rates amid a strong jobs market.

The Producer Price Index, which tracks changes in the costs of wholesale goods and services, rose 0.4 percent in October compared to the prior month, the Labor Department reported, handily beating analyst expectations for a rise of only 0.1 percent.

Year-over-year, however, the index rose 2.8 percent, its highest since February 2012 and well above the central bank’s two percent inflation target.

While the Federal Reserve focuses on a measure of consumer price inflation for its monetary policy decisions, a rising PPI could signal more normal price behavior is ahead if that passes through to retail prices.

Fed Chair Janet Yellen has admitted to some soul searching in the face of very tame inflation, which she says the central bank does not fully understand. Despite that uncertainty, market watchers widely expect the Fed to raise interest rates at its final meeting of the year next month.

Excluding the volatile categories of food and fuel, PPI was up 0.2 percent for the month, and this “core” rate was up 2.3 percent over October of last year.

The index for energy goods such as oil and gas was unchanged for the month. However, services jumped 0.5 percent, and the report said three-quarters of the increase was due to rising margins for retailing fuels and lubricants.

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