US Wholesale Prices Surge in September as Energy Costs Climb

Wholesale prices in the United States rose significantly faster than anticipated in September, driven higher by sustained energy pressures stemming from the ongoing U.S. conflict with Iran. The producer price index climbed 1.3% on a monthly basis, pushing the annual rate to 6.3%, according to data released Thursday by the Bureau of Labor Statistics.

These figures exceeded the consensus forecasts of economists polled by Dow Jones, who had projected a monthly increase of 0.6% and an annual gain of 5.5%. The readings represent the largest monthly and annual advances recorded since March 2022 and December 2022, respectively.

Energy played a central role in the acceleration as the Middle East conflict restricted oil supplies and drove prices upward. The core producer price index, which strips out volatile food and energy categories, advanced 0.7% for the month and 5% over the preceding 12 months.

Downstream effects from surging energy costs are spreading to other sectors of the economy. The Bureau of Labor Statistics noted that nearly half of the September increase in processed goods for immediate demand was directly linked to rising diesel fuel prices.

This release follows consumer inflation data published Wednesday showing the consumer price index increased 0.6% from August to September, bringing the 12-month rate to 3.7%. Economists had expected a 3.6% annual increase. Core consumer prices, excluding food and energy, added 0.3% for the month and 2.6% year-over-year.

Retail sales also expanded in September, growing 0.8% and beating the 0.4% advance anticipated by economists. However, this represented a deceleration from a growth rate exceeding 1% in the prior month. Excluding autos and gas stations, retail sales rose just 0.25%, down from about 1.1% previously, suggesting that higher fuel-related costs are prompting consumers to reduce spending elsewhere.

Why it matters

The consecutive reports of higher-than-expected inflation have shifted expectations regarding monetary policy. A growing minority of Fed funds futures traders now anticipate that the Federal Reserve will raise interest rates at its upcoming meeting later in the month.

Data from CME's FedWatch tool indicates that traders are pricing in a nearly 34% probability of a rate hike on October 28, up from less than 18% a week earlier. Approximately 90% of traders now expect at least one rate increase before the end of the year.

"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.

What to watch

These economic indicators provide some of the final assessments of domestic inflationary pressure prior to the upcoming midterm elections, a political milestone that could alter the balance of power in Washington. Observers will closely monitor upcoming central bank communications and energy market developments to gauge whether borrowing costs will rise later this month.