The core rate of producer prices in July declined for the first time since October, while overall prices trailed forecasts.
According to Bloomberg.com, the data may help the Federal Reserve keep rates unchanged at 5.25% at its next meeting on Sept. 20, which helped rally the stock market Tuesday (Aug. 14).
“The thought that inflation is not an issue and the Fed probably can stop will generally be positive for the market,” said Kurt Wolfgruber, chief investment officer of OppenheimerFunds Inc. in New York.
Concern about the future of Fed rate increases has held back stocks this month, which rallied following today’s (Aug. 14) report. While the Fed didn’t raise the benchmark on Aug. 8, it left room to resume raising borrowing costs later this year.
The Labor Department said prices paid to U.S. producers excluding fuel and food fell 0.3 percent. None of the economists in a Bloomberg News survey forecast a decline. Overall prices gained 0.1 percent last month after a 0.5 percent increase in June. Economists in a survey expected a rise of 0.4 percent.
Stocks also got a boost from a report on manufacturing that showed the economy is expanding at a pace that will allow growth without sparking inflation. The Federal Reserve Bank of New York’s general economic index dropped to 10.3 in August from 16.6 in July. A number above zero signals a higher percentage of manufacturers said business improved rather than deteriorated.
After the release of the economic data, traders trimmed the odds that the Fed will boost the benchmark rate to 5.5 percent. Odds of an increase in September dropped to 27% from 38%, according to trading in securities that allow bets on the direction of rates. The chance of an increase by December fell to 68% from 90% yesterday.