US wholesale inflation accelerated to its highest annual rate in more than four years in September, according to Bureau of Labor Statistics data released Thursday, intensifying concerns that price pressures remain embedded in the economy.
The Producer Price Index climbed 1.3% from August and 6.3% from a year earlier. Both readings exceeded economist forecasts of 0.6% and 5.5%, respectively. The annual figure was the largest since December 2022 and marked an acceleration from August's 5.6% pace.
The report landed a day after hotter-than-expected consumer inflation data, reinforcing expectations that the Federal Reserve may need to keep monetary policy restrictive for longer.
Energy costs drive goods inflation
Goods prices surged 2.6% in September, the largest monthly increase since the series began in December 2009. Energy prices climbed 10.8% and accounted for more than 80% of the increase in goods costs. Gasoline prices jumped 20.3%, while diesel, jet fuel and residential electricity also became more expensive.
Elevated oil prices, partly driven by the prolonged US-Israeli conflict with Iran, continued to pressure energy markets. Food prices rebounded 1.2% after three consecutive monthly declines. Excluding food and energy, goods prices increased 0.3%, compared with August's 0.4% rise.
Services inflation also strengthened, with prices advancing 0.8% after increasing 0.2% in August. Trade services margins climbed 1.4%, contributing nearly half the increase in services prices. Freight transportation, hotel accommodation and airline fares also became more expensive, although automotive fuel retailing margins and securities brokerage prices declined.
Fed rate hike expectations strengthen
The inflation figures intensified scrutiny of the Federal Reserve's next policy decision. "US economic data continues to arrive hot implying a quicker pace of aggregate demand, nominal GDP & inflation," Joseph Brusuelas, RSM US Principal & Chief Economist, said. "The Fed October meeting is going to be a live meeting and demands consideration of a rate hike," he said.
According to CME FedWatch data, traders assigned approximately 27% probability to an October rate increase, compared with 21.6% before Wednesday's consumer inflation report. Markets also priced in an 89.5% probability of another increase in December. The Fed raised borrowing costs by 25 basis points in September, its first increase since 2023. UBS expects another quarter-point increase in December.
"The combination of stronger goods inflation with strong services inflation supports a higher-for-longer Fed outlook," UBS economist Andrew Dubinsky said in a note on Wednesday.
Inflation outlook remains uncertain
Economists expect September's core Personal Consumption Expenditures inflation, the Fed's preferred underlying inflation gauge, to rise between 0.3% and 0.4% monthly. That would leave annual core PCE inflation near 3.1%, above the central bank's 2% target. Persistent inflation is also prompting central banks globally to signal that borrowing costs could remain elevated for longer.
Meanwhile, the number of Americans filing new claims for unemployment benefits rose marginally last week, as low layoffs continued to keep the labour market stable. Initial claims for state unemployment benefits increased by 1,000 to a seasonally adjusted 199,000 in the week ended October 10, the Labor Department said on Thursday. Economists polled by Reuters had expected claims to reach 200,000.
This article is for informational purposes only and does not constitute financial advice.
