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US wholesale inflation heated up last month amid higher gas prices

By Alicia Wallace, CNN

Minneapolis (CNN) — Wholesale price increases of US goods and services jumped higher for a third consecutive month, influenced by still-high energy prices, according to data released Wednesday by the Bureau of Labor Statistics.

The Producer Price Index, which measures the average price changes that businesses pay to suppliers, rose 2.2% for the 12 months ended in September. On a monthly basis, prices rose 0.5%, a slight cooldown from August’s 0.7% increase. September’s overall increase was driven by a 0.9% gain in goods prices due to higher energy prices and food prices, BLS data shows.

Economists had projected an annual increase of 1.6% and a monthly uptick of 0.3%, according to Refinitiv consensus estimates.

Gas prices hit new yearly highs in September, as oil prices pushed past $92 a barrel amid supply cuts and catastrophic flooding in Libya. However, in October, oil prices have swung in the opposite direction, a welcome development for consumers and the Federal Reserve alike.

When stripping out the more volatile components of food and energy, the core PPI rose 2.7% for the month and was up 0.3% for the year. While higher than the estimated 2.5% annual increase in August, the year-over-year increase in core PPI remains near its 2023 lows and well below the record 9.7% high hit in March 2022.

Notably, without the influence of energy and food, final demand goods prices grew only 0.1% from August to September, BLS data shows.

“While the disinflationary impulse from easing supply chain strains is largely over, the all-important PPI for trade services — a proxy for margins — has shown significant disinflation which should in turn feed into lower consumer price inflation,” wrote Gregory Daco, EY chief economist.

Still, September’s PPI report serves as a reminder that inflation’s path downward will be a bumpy one, as Federal Reserve Chair Jerome Powell has warned during the central bank’s rate-hiking campaign to cool inflation.

Chris Rupkey, chief economist at FwdBonds said Wednesday: “The Fed has not finished the job and stamped inflation out completely yet, and if anything, policymakers have their work cut out for them as much as the inflation we see in producer prices is coming from food and energy prices that monetary policy has less effect on.”

The Fed not expected to budge

While a two-month surge in energy prices may be enough to cause a short-term pinch to consumers and businesses, economists don’t expect the recent upswing to have a lasting effect.

The higher gas prices seen in August and September may filter through to some products and services but shouldn’t ultimately keep inflation higher in the months to come, said Stuart Hoffman, PNC Financial Services’ senior economic adviser.

However, the Israel and Hamas war in the Middle East does add volatility to energy prices, he said.

PPI is a closely watched inflation gauge since it captures average price shifts before they reach consumers and serves as a potential signal for the prices consumers ultimately end up paying.

However, Wednesday’s PPI could be foretelling in a different sense. The Consumer Price Index report for September, scheduled to be released at 8:30 am ET, is expected to show a similar trend: High, but easing, gas prices that could push up overall inflation, with underlying price increases showing gradual improvement.

“The CPI [Thursday] will be even more important, and it’s likely to also show a little bit of a hot rise, but not as hot as the month before, on energy prices,” Hoffman said, adding that he anticipates monthly increases of about 0.3% to 0.4% on the headline index and 0.2% to 0.3% on core. “I think there’s enough there, given everything else that’s going on in the world, that the Fed is going to pass on a rate hike on November 1.”

The markets largely anticipate the Fed holding steady. The CME FedWatch Tool on Wednesday morning showed an 84.2% probability that Fed policymakers keep the benchmark rate in the current range of 5.25% to 5.5%.

“We also think that’s going to be a decision for many meetings to come, [for the Fed] to just basically run in place at 5.25% to 5.5% and not feel the need to raise rates anymore,” Hoffman said.

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