Key insights
- U.S. producer prices surged 1.3% month-on-month in September, significantly exceeding expectations and marking the largest increase in 4-1/2 years. This rise was primarily driven by a record jump in energy costs, including a 20.3% surge in gasoline prices. The data indicates mounting inflationary pressures, which could influence the Federal Reserve's upcoming interest rate decisions. This follows a consumer price index report that also surpassed forecasts, highlighting broader inflation concerns in the U.S. economy.
Investing.com - U.S. producer prices climbed by the most in 4-1/2 years in September, fueled in part by a record jump in goods costs, in the latest sign of energy-induced inflationary pressures that could factor into the Federal Reserve’s upcoming interest rate decision.
The producer price index for final demand rose by 1.3% on a month-on-month basis last month, faster than expectations of 0.6% and August’s pace of 0.5%.
Prices for final demand goods advanced by 2.6%, the largest increase since the PPI figures were first calculated in December 2009, the Labor Department said. Over four-fifths of this rise was attributable to a 10.8% surge in the index for final demand energy. Gasoline prices, meanwhile, soared by 20.3%.
Trackers of diesel fuel, fresh and dry vegetables, jet fuel and crude petroleum also ticked higher, offsetting a 39.7% drop in chicken egg prices.
For final demand services, prices rose by 0.8%, the largest uptick since April. Nearly half of the increase was due to a 1.4% rise in margins for final demand trade services, the Labor Department noted, adding that the index for final demand transportation and warehousing services advanced by 3.4%.
Worries have abounded that a spike in diesel costs -- broadly stemming from energy supply constraints caused by the Iran war -- will drive up transportation expenses and bleed into a wide range of items.
In the twelve months to September, PPI stood at 6.3%, rising from 5.6% previously. Economists had seen the figure at 5.3%.
Crucially, the PPI includes components that feed into the personal consumption expenditures price index, one of the Fed’s preferred inflation metrics.
Wednesday’s reading comes a day after a separate gauge of consumer price growth also outpaced expectations, highlighting signs of mounting inflation in the world’s largest economy. The Fed lifted interest rates in September in a bid to cool price gains back down to its 2% target level, although markets are wagering just a one-in-three chance the central bank does so again at its October 27-28 meeting.
But the Fed is projected to raise borrowing costs by a quarter of a percentage point once again at its final gathering of the year in December.
“[T]he PPI was very hot in September, even worse than the CPI on Wednesday, underscoring that prices last month saw big upward momentum and while energy certainly played a large role, [...] it doesn’t look like there will be much energy relief given how geopolitical conditions are worsening in both the Middle East and Ukraine and [...] energy being this high for this long is inevitably bleeding into the underlying economy and pushing core prices higher,” analysts at Vital Knowledge said in a note.
Elsewhere, a separate data set showed that retail sales expanded by 0.8% last month, decelerating from growth of 1.3% in August. However, the number was faster than forecasts of 0.3%. Stripping out autos and gas, retail sales grew by 0.2%, while sales without autos gained 0.9%, underscoring the effect of higher fuel costs.
“Admittedly, the strength in spending in August means that consumption growth is still on track to rise by a strong 3.3% annualized in the third quarter. But the weakness in September provides a poor handover to consumption growth in the fourth quarter,” analysts at Capital Economics said in a note.
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