September’s producer price index came in much higher than economists expected Thursday, underscoring continued inflationary pressure from the energy sector amid the U.S.-Iran war.
The measure of underlying inflationary pressures climbed 1.3% in September and 6.3% on an annual basis, according to the Bureau of Labor Statistics. These are the largest monthly and annual gains since March 2022 and December 2022, respectively.
Both figures exceeded the expectations of economists surveyed by Dow Jones, who forecast an increase of 0.6% for the month and 5.5% for the year.
Energy is driving a significant portion of these increases, as conflict in the Middle East has reduced oil supplies and pushed up prices. The so-called core PPI, which excludes volatile food and energy prices from the wholesale inflation index, added 0.7% over the month and 5% over the 12-month period.
But there are signs that soaring energy prices are having downstream effects on other categories. The BLS said in its Thursday release that nearly half of the increase in processed goods for immediate demand in September was related to higher diesel fuel prices.
It’s the latest report in recent days showing that inflation continues to hit consumers and businesses.
Wednesday’s publication of the consumer price index showed an increase of 0.6% from August to September and 3.7% over 12 months. Economists surveyed by Dow Jones expected growth of 0.6% and 3.6% respectively.
Excluding food and energy, the core CPI increased by 0.3% over the month and by 2.6% compared to last year. Economists forecast increases of 0.2% and 2.5% respectively.
Wednesday’s Beige Book, a chronicle of economic activity published by the Federal Reserve, recorded the highest number of mentions of inflation-related terms on record, according to an analysis by Bespoke Investment Group.
Retail sales rose 0.8% in September, beating the 0.4% rate forecast by economists, according to government data released Thursday in a separate report. This marks a slowdown from the previous month, when retail sales rose more than 1%.
Excluding spending on automobiles and gas stations, retail sales rose 0.25% from August to September, down from about 1.1% in the previous period. This slowdown is a sign that high fuel prices are encouraging consumers to tighten their belts elsewhere.
This week’s data has led a growing minority of federal funds futures traders to expect the central bank to raise rates at its scheduled meeting later this month. Traders now give a nearly 34% chance that the Fed will raise borrowing costs on Oct. 28, up from less than 18% a week earlier, according to CME’s FedWatch tool. About 90% expect at least one increase by the end of the year.
“With a second straight day of higher-than-expected inflation numbers, it appears the Fed will have no choice but to raise rates this year,” said Chris Zaccarelli, chief investment officer at Northlight Asset Management.
The reports offer some of the latest insights into the pace of inflation in the United States as the midterm elections approach, which could impact the power of each political party in Washington.
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