Implications:  Producer prices made a surprise move lower in September, as falling energy prices and declining margins to wholesalers pushed the index down 0.3%.  Energy prices dropped 2.5% in September, led lower by a 7.2% decline in gasoline prices.  Food prices, meanwhile, rose 0.3% on the month.  Strip out these typically volatile categories, and "core" prices also fell 0.3% in September, marking the largest single-month drop for core prices since early 2015. Declining margins to wholesalers, particularly machinery and vehicle wholesalers, led the drop in core prices in September, though most major categories moved lower.  It's important to note that, even with the multi-year large decline in September, "core" prices are up 2.0% in the past year, and have run at or above the Fed's 2% inflation target on a year-ago comparison basis for the past twenty-six months straight.  Consensus expectations for the "core" reading in Thursday's consumer price index (CPI) release is a rise of 0.2%, and if that holds, "core" consumer prices will be up 2.4% in the past year.  In other words, parsing the volatile month-to-month data from the trend, the Fed should consider if further rate cuts are really needed right now.  The data don't seem to justify it, but the Fed left data dependence behind back in July.  Goods prices led the producer price index lower in September, with energy costs the key culprit.  Services prices declined 0.2% in September, with falling wholesaler margins more than offsetting a 1.1% increase in the cost for hospital outpatient care. Further down the pipeline, prices for intermediate demand goods remains soft, while intermediate demand services prices continue to move higher.  The pouting pundits may take today's report and point to the decline as evidence that the Fed needs to move rates lower, but we think that's a mistake.  Core inflation remains in-line with targets, and a focus on a single-month's reading misses the forest for a tree. That said, the Fed seems bent on lowering rates, and we expect we will see one more rate cut before the year is out, most likely coming at the meeting later this month.  

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