September’s producer price index far exceeded economists’ expectations on Thursday, underscoring continued energy-driven inflationary pressures amid the war between the United States and Iran.
A measure of underlying inflation pressures rose 1.3% in September, bringing the annual rate to 6.3%, according to the Bureau of Labor Statistics. This was the largest monthly and annual increase since March 2022 and December 2022, respectively.
Both indicators beat forecasts by economists compiled by Dow Jones, which predicted growth of 0.6% for the month and 5.5% for the year.
Energy drove a significant portion of this increase, as conflicts in the Middle East reduced oil supplies and sent prices soaring. The so-called core PPI, which subtracts volatile food and energy prices from the wholesaler’s inflation index, rose 0.7% month-on-month and 5% over the 12-month period.
But there are signs that rising energy prices are having downstream effects on other categories as well. The BLS said in a release Thursday that nearly half of the increase in ready-to-use manufactured goods in September was related to higher diesel fuel prices.
This is the latest report in recent days showing that inflation continues to hurt consumers and businesses.
The consumer price index released on Wednesday rose 0.6% from August to September, or 3.7% on a 12-month basis. Economists polled by Dow Jones had expected 0.6% and 3.6%, respectively.
Core CPI excluding food and energy rose 0.3% month-on-month and 2.6% year-on-year. Economists had expected increases of 0.2% and 2.5%, respectively.
Wednesday’s Beige Book, a record of economic activity published by the U.S. Federal Reserve, had the highest number of mentions of inflation-related terms ever, according to an analysis by Bespoke Investment Group.
Government figures released in a separate report on Thursday showed retail sales rose 0.8% in September, beating economists’ expectations of 0.4%. It was a slowdown from the previous month, when retail sales rose more than 1%.
Retail sales, which exclude spending on cars and gas stations, rose 0.25% from August to September, down from about 1.1% in the previous quarter. The economic slowdown shows that rising fuel prices are causing consumers to tighten in other areas.
This week’s numbers have left a minority of federal funds futures traders expecting the central bank to raise rates at its meeting later this month. Traders are now pricing in a nearly 34% chance that the Fed will raise borrowing costs on Oct. 28, up from less than 18% a week ago, according to CME’s FedWatch tool. About 90% expect at least one interest rate hike by the end of the year.
“With inflation coming in higher than expected for two straight days, the Fed will be forced to raise rates again this year,” said Chris Zaccarelli, investment chief at Northlight Asset Management.
The reports provide some of the final insight into the pace of U.S. inflation ahead of the midterm elections, which could affect political parties’ influence in Washington.
