Wholesale prices in September rose to their highest level in nearly four years, largely propelled by higher energy prices. The sharp increase stokes concerns that inflation could broaden and keep the Federal Reserve on watch for further rate hikes.
The Producer Price Index (PPI) for final demand, which measures the prices that factories, farmers, and producers charge for their finished goods and services, rose 6.3% last month, the largest increase since December 2022. The data trounced expectations for a 5.4% rise.
On a “core” basis, excluding food and energy, PPI jumped 0.7% month over month in September, handily higher than market expectations of 0.3%. On a year-over-year basis, this core measure jumped 5.0%, up from 4.7% previously
“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, chief investment officer for Northlight Asset Management.
“While we don’t expect them to raise rates later this month because it is so close to the mid-term election, we do think that they will increase the Fed Funds rate another 25 bps in December,” Zaccarelli added.
Half of the September increase in the index for final demand goods can be traced to gasoline prices, which jumped 20.3%. In contrast, prices for chicken eggs dropped 39.7%.
Read more: How to protect your savings against inflation
Looking into the supply chain, the increases in the price of goods sold by one business to another were broad-based, with the index for processed goods rising 2.5%, prices for unprocessed goods moving up 8.4%, and the index for services advancing 0.9%.
The index for processed goods sold to other businesses rose 2.5%, the largest rise since jumping 2.8% in May — with most of the increase due to a 10% spike in energy prices. Nearly half of the rise in processed goods sold to other businesses is attributable to a 21% increase in diesel fuel prices.
Wholesale prices act as an early-warning pipeline for inflation. If the prices of these input goods rise, manufacturers could pass those higher costs down to consumers later.
In the Fed’s Beige Book, released Wednesday, four districts reported that the pace of price increases has picked up since September. Higher oil prices permeated all 12 Fed districts. Companies reported elevated diesel prices and noted that fuel surcharges were passing on increased costs throughout the supply chain.
Businesses in multiple districts also noted continued price pressure from other commodities, tariffs, and insurance. Consumer-facing companies said their profit margins have tightened as price-sensitive customers continue to resist price hikes. Businesses are managing their margins with selective price hikes, targeted incentives, and menu changes that reduce their costs.
