High energy prices continue to ripple through U.S. supply chains, increasing costs for businesses and paving the way for further increases in the coming months for U.S. consumers.
Wholesale inflation accelerated last month to its highest rate in nearly four years, Bureau of Labor Statistics data showed Friday.
The producer price index, a measure of average price changes received by producers and manufacturers, increased 0.3% from the previous month and 6.5% for the 12 months ended October, the highest annual rate since November 2022.
Excluding gas and food prices, the core PPI increased by 0.3% on a monthly basis and by 5% over the year, corresponding to a rate last seen in January 2023.
The war in Iran and the resulting energy shock have driven up gas and diesel prices in recent months.
Fuel prices didn’t rise as quickly last month as they did in September (when the PPI rose at a dizzying 1.4% to 6.3%); However, the sharp rise in recent months, combined with other more persistent price pressures, has kept wholesale inflation quite high.
Notably, food prices climbed rapidly for the second consecutive month, increasing 1.3% in October – the fastest monthly increase since July 2022 – after increasing 1.1% in September.
In the food sector, the largest price increases were observed for manufactured goods, which are mainly transported by truck. Freight transportation costs for the trucking industry are up nearly 25% from last year, according to BLS data.
Friday’s report showed that wholesale prices of fresh and dried vegetables jumped 26.7% in October, following a 30.7% jump in September.
High diesel costs continue to spill over into other categories, increasing the costs of transportation, warehousing and key inputs like chemicals.
Although the PPI does not translate directly into the Consumer Price Index, its trajectory and category-specific price increases can serve as a potential indicator of what consumers might experience in the near future.
“We’ve already seen a lot of knock-on effects in areas like airfares, where consumer prices have gone up a lot,” Matt Bush, U.S. economist at Guggenheim Investments, said in a CNN interview.
However, the rising transportation and input costs businesses are currently experiencing may not affect consumers for six to eight months, he said.
“And that’s complicated by the fact that we also have lingering tariff effects on a lot of these consumer goods prices,” he said.
As a result, consumers could expect another sticker shock early next year.
“This is when the majority of companies do their annual price review,” he said. “In the case of the energy shock, it was expected to be short-lived; but given that it has been going on for several months now, I think that as the new year approaches, many companies will decide that they need to pass on at least some of these costs.”
At the same time, massive investments in artificial intelligence technology and equipment are contributing to a new layer of inflationary pressures for both businesses and consumers.
Electronic components and accessories, which grew at the fastest six-month pace of 4.2%, are up 31.7% from a year earlier, the highest annual rate on record, according to BLS data dating back to December 1966.
“These don’t show up directly in consumer prices, but indirectly we see them show up in the prices of computers, televisions and software,” Bush said.
Friday’s PPI data, coupled with the higher-than-expected October CPI released earlier this week, are expected to lead to a rate hike from the Federal Reserve when policymakers meet in early December.
Markets expect an increase of a quarter point; However, Fed Governor Christopher Waller indicated earlier this week that a half-point hike may be necessary.
The rate hikes may not end in December, said Ben Ayers, Nationwide’s senior economist.
“The lingering impacts of soaring fuel prices could persist through 2027, warranting further tightening by the Fed to limit the impacts of second- and third-order inflation,” he wrote in a note Friday.
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