September’s producer price index came in far hotter than economists had forecast, reinforcing persistent inflationary pressures tied to rising energy costs amid the U.S. war with Iran.
The producer price index climbed 1.3% in September and 6.3% on an annual basis, according to the Bureau of Labor Statistics, marking the largest monthly and annual gains since March 2022 and December 2022, respectively.
Both readings significantly topped expectations from economists polled by Dow Jones, who had forecast a monthly advance of 0.6% and an annual gain of 5.5%.
Energy costs drove a sizable portion of those increases as the Middle East conflict curtailed oil supply and sent prices sharply higher across multiple sectors.
The core PPI, which strips out volatile food and energy prices, added 0.7% on the month and 5% over the 12-month period, showing that price pressures extend well beyond fuel alone.
The Bureau of Labor Statistics noted that almost half of September’s increase in processed goods for immediate demand was directly connected to the rise in diesel fuel prices.
Wednesday’s consumer price index showed a rise of 0.6% from August to September and 3.7% on a 12-month basis, also topping Dow Jones economist forecasts of 0.6% and 3.6%, respectively.
The Federal Reserve’s Beige Book, published Wednesday, recorded the highest number of mentions of inflation-related terms on record, according to an analysis from Bespoke Investment Group.
Retail sales grew 0.8% in September, surpassing the 0.4% rate anticipated by economists, though excluding autos and gas stations, sales rose just 0.25%, down sharply from roughly 1.1% the prior month.
Traders are now pricing in a nearly 34% likelihood that the Fed raises borrowing costs at its October 28 meeting, up from under 18% just one week prior, according to CME’s FedWatch tool.
Approximately 90% of fed funds futures traders expect at least one rate hike by the end of the year, reflecting growing conviction that the central bank must act again.
“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 inflation reports arrive ahead of the midterm election, which could significantly shape how much legislative power each political party holds in Washington going forward.
