American companies are seeing an inflation slowdown

New data showed wholesale prices rising by 0.2%, much slower than expected
Shipping lower prices.
Shipping lower prices.
Image: Brendan McDermid (Reuters)
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The prices that US companies pay for goods and services went up by a mere 0.2% in October, according to new data from the Bureau of Labor Statistics. For inflation hawks, this rise was heartening, coming in much lower than the Dow Jones estimate of 0.4%. This slowing of inflation signals that demand from companies and consumers is being squashed by higher interest rates, but also that supply chains are being repaired after months of disarray.

“The data support the Federal Reserve’s plan to step down the pace of rate increases,” said Jeffrey Roach, the chief economist at LPL Financial, in a statement. “Barring geopolitical or financial crises, inflation should continue its deceleration into 2023.”

In some categories, prices decreased during the month. For goods that aren’t food- or energy-related, companies saw prices fall by 0.1%. They caught a break in services as well, which also saw prices fall by 0.1%.

The decline in services was led by a 0.5% contraction in cost of trade and a 0.2% contraction in the price of warehousing. October marks the second consecutive month that trade prices have fallen, and the fourth consecutive month that warehousing costs have fallen.

Home construction supply chains are getting better

Businesses are reporting both a decrease in demand and an increase in the supply of materials. In its fourth fiscal quarter earnings call, DR Horton, the home construction company, reported that it had seen home completions pick up in October. In the past year, homebuilders saw shortages of everything from lumber to kitchen sinks. As builders see demand drop off, they gain some breathing room, meaning that construction projects can be finished more often even as new ones are less likely to start.

Meanwhile, freight companies like FedEx are parking aircraft because of reduced consumer demand. Earlier this week, Amazon announced 10,000 layoffs, citing recession fears and online spending coming back down to pre-pandemic levels.

To be sure, lower wholesale prices aren’t automatically good news for the prices that consumers pay in stores, since employers bear the costs of labor and capital costs in addition to those of goods and services. But October’s wholesale price index presents one more sign that US inflation has already peaked and is on its way back down.