A worker welds a steel tube at HCC, a company that uses parts to make combines, at the factory in Mendota, Illinois, U.S., February 21, 2025. REUTERS/Vincent Alban

WASHINGTON (Reuters) -Factory activity in the U.S. mid-Atlantic region unexpectedly contracted in October, and more manufacturers reported paying and receiving higher prices for inputs and their goods, suggesting inflation could still rise further.

The Philadelphia Federal Reserve Bank said its business activity index dropped to -12.8 this month from 23.2 in September. A reading below zero indicates contraction in the region's manufacturing, which covers eastern Pennsylvania, southern New Jersey and Delaware.

Economists polled by Reuters had forecast the index slipping to a reading of 8.5.

The contraction came despite the survey's measure of new orders increasing to 18.2 from 12.4 in September. But its gauge of shipments declined to 6.0 from 26.1 in the prior month.

The survey's measure of prices paid for inputs by factories rose to 49.2 from 46.8 in September. Philly Fed said more than 49% of firms in the survey reported increases in input prices, while none reported decreases. About 51% reported no change.

Its measure of prices received for manufacturers' products jumped 8 points to 26.8. Nearly 28% of the firms reported increases in prices received for their own goods. Only 1% reported a reduction while 70% reported no change. Both price indexes are above their nonrecession averages.

At face value the price measures suggest inflation is poised to increase further because of tariffs on imports.

The pass-through from import duties has been gradual, but businesses have now depleted their pre-tariff inventories. Economists are divided on whether the pass-through from tariffs would be a one-off event or prolonged.

(Reporting By Lucia Mutikani; Editing by Chizu Nomiyama )