Rising wholesale costs added fresh pressure to the US economy in September. Producer inflation accelerated beyond forecasts, driven largely by energy, according to data released Thursday by the Bureau of Labor Statistics.
The Producer Price Index increased 1.3% from August and 6.3% from a year earlier, according to the Bureau of Labor Statistics. In August, wholesale prices rose 0.5% for a 5.6% annual pace. Economists surveyed by FactSet had expected a 0.5% monthly gain and a 5.3% annual increase. Instead, September posted the fastest monthly rise since March 2022 and the highest annual rate since December 2022, when US inflation was near a 40-year high.
Energy Costs Drive the Spike
Energy drove a sizable chunk of those increases as geopolitical conflicts and regional tensions curtailed oil supply and sent prices surging. A broad range of goods and services also got more expensive.
The Bureau of Labor Statistics noted that almost half of September’s increase in processed goods for immediate demand was connected to the rise in diesel fuel prices. Both inflation reports raise pressure on the inflation-fighters at the Federal Reserve to hike their key interest rate. Inflation has now topped the central bank’s 2% target for over five years.
Core Prices and Consumer Impact
Excluding the volatile food and energy categories, core prices rose 0.7% from August to September, up sharply from 0.2% in the previous month. Compared with a year ago, core prices rose 5%, up from 4.6% in August.
Thursday’s data amplifies the better-known Consumer Price Index, which also accelerated as gas prices jumped. Retail sales grew 0.8% in September, surpassing the rate of 0.4% anticipated by economists, according to government data released Thursday. However, it marked a slowdown from a month prior when retail sales rose by more than 1%.
Excluding spending on autos and gas stations, retail sales increased 0.25% from August to September, a drop from around 1.1% in the prior period. This slowdown offers a clear sign that high fuel prices are causing consumers to tighten their belts elsewhere.
Federal Reserve Response and Market Outlook
This week’s data has left a growing minority of Fed funds futures traders expecting the central bank to raise interest rates at its upcoming meeting. Traders are now pricing in a nearly 34% likelihood that the Fed hikes borrowing costs, up from under 18% a week prior, according to CME’s FedWatch tool.
“With a second day in a row of higher-than-expected inflation numbers, it seems the Fed will have no choice but to raise rates again this year,” said Chris Zaccarelli, investing chief at Northlight Asset Management.
These reports offer critical insights into the pace of inflation in the United States, keeping economic stability at the forefront of policy discussions and public concern.
Frequently Asked Questions
What is the Producer Price Index (PPI)?
The Producer Price Index measures the average changes in prices received by domestic producers for their output. It captures inflation before it reaches final consumers.
How much did wholesale prices increase in September?
The PPI increased by 1.3% month-over-month in September and stood at 6.3% higher than a year earlier, exceeding economists’ forecasts.
What drove the sharp rise in September wholesale inflation?
The primary driver was a steep increase in energy costs, particularly fuel prices, which impacted processed goods and various industrial sectors.
How did the Federal Reserve and markets react to the data?
The higher-than-expected inflation data increased pressure on the Federal Reserve, raising market expectations that the central bank might hike interest rates to cool economic activity.
What is the difference between PPI and CPI?
While the Producer Price Index measures inflation from the perspective of manufacturers and wholesalers, the Consumer Price Index tracks the prices paid directly by urban consumers for goods and services.
