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Wholesale Prices Rose Higher than Expected in September

Key Takeaways

  • The Producer Price Index rose 0.5% in September, lower than the 0.3% forecast from analysts.
  • Year-over-year PPI hits 2.2%, up from August’s 1.6%.
  • Energy prices increase 3.3%, including a 5.4% hike in gasoline costs.

Wholesale prices grew at a slower clip in September than the month prior, sending signals that inflation is slowing as investors keep an eye on data ahead of the Federal Reserve’s November meeting.

The Labor Department’s Producer Price Index (PPI) rose 0.5% in September, more than the 0.3% increase in wholesale prices that analysts projected but less than August’s 0.7%.

On a year-over-year basis, prices measured by PPI were 2.2% higher, an increase from August’s 1.6% reading, and the largest increase in the annual measurement of price increases since they rose 2.3% in April. 

PPI excluding food, energy, and trade services increased 0.2% in September, in line with analyst expectations, while the year-over-year increase in “core inflation” of 2.8% was lower than the prior month’s reading of 3.0%. 

“Core prices rose more modestly, thanks in part to core goods prices, which barely rose over the quarter due to falling goods demand,” wrote Oxford Economics U.S. Economist Matthew Martin in an analysis.

Energy Prices Fuel PPI Increase

Energy prices increased 3.3% over the month, with gasoline’s 5.4% price jump helping drive the monthly PPI reading higher. Food prices were higher by 0.9% in September, the second time food prices have increased over the past three months.

PPI was designed to measure price changes at the wholesale level and is often thought of as a precursor for consumer price changes, as wholesalers pass on any price increases.

This reading comes as Federal Reserve officials are combing inflation data to determine whether interest rates need to be raised even further, following signals from some that the federal fund rate may currently be at its peak at 5.25% to 5.5%.

PNC Senior Economic Advisor Stuart Hoffman said he thinks the uptick in prices isn’t enough to prompt the Fed to raise rates again on Nov. 1. 

Prices for services remain higher than prices for goods, Hoffman noted, pointing to a 2.4% increase in the service PPI over the first nine months of this year, compared to a core goods PPI rise of 1.7% over the same period.

“As long as consumers continue to spend on services, service providers will continue to pass along any and all rises in their own costs, especially higher labor costs, to their customer,” Hoffman wrote. 

The PPI reading comes ahead of tomorrow’s Consumer Price Index report at 8:30 a.m. Eastern Time, which will be closely watched.