Producer prices accelerated in September, with the Bureau of Labor Statistics reporting a 1.3% month over month increase - the largest since March 2022 - lifting the year over year change to 6.3%.
Stripping out food and energy, the index rose 0.7% in September and 5% from a year ago. Those two core readings exceeded all forecasts in a Bloomberg poll. A separate release on Wednesday showed a key consumer inflation measure also topped expectations last month. Following the PPI release, US Treasuries stayed up while equity index futures stayed down.
The backdrop: inflation pressure still looks firm alongside pricier fuel, and this lands just ahead of November's midterms where affordability is front and center. The data also likely keeps Federal Reserve officials leaning toward more rate increases in the months ahead.
Energy prices in the PPI vaulted 10.8% in September. Transportation and warehousing costs climbed 3.4% - the biggest monthly gain since April - and food prices increased 1.2%.
Carl Weinberg, chief economist at High Frequency Economics, put the mechanics in plain sight. "The jolt to transportation prices affects every good in the economy, since inputs to manufacturing move to factories and goods at all stages of production move from producer to wholesaler to retailer by truck, train or rail," he wrote. "This is how increases in energy prices 'bleed through' to prices of core goods."
Trade dynamics also played a role. Wholesale and retail trade services margins rose 1.4% in September, the most since April, a category watched for how companies handle tariff-related costs. Earlier this year, the Supreme Court invalidated many of President Donald Trump's tariffs, while the administration has leaned on other legal tools to put duties on imports. Talks with Canada collapsed in August and the trade fight has since intensified.
PPI components that roll into the Fed's go-to inflation yardstick - the personal consumption expenditures price index - showed a mixed picture. Airfares jumped 5% on the month, while several health care components were comparatively soft.
In other details, prices for electronic components and accessories slipped 0.3%; prices for computers and computer equipment increased 0.1%; and a broader gauge of construction costs was little changed.
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Bloomberg Economics' Troy Durie summed it up: "Producer-price inflation firmed in September as higher energy prices translated to higher transportation costs and wholesalers recovered margins. More important for the Fed, PPI components that feed into PCE - namely airfares - came in above expectations, putting more pressure on PCE inflation."
Following the release, some economists penciled in a 0.3% to 0.4% increase for the core PCE deflator. The Bureau of Economic Analysis plans to publish September PCE, along with income and outlays, on Oct. 29.
The takeaway for households is straightforward: higher energy is finding its way into broader prices. And it is not happening in a vacuum. Separate reports Thursday showed September retail sales beat forecasts, buoyed by gasoline station receipts even as spending at other retailers looked mixed.
The New York Fed said factory activity in the state grew at the fastest pace in nearly five years, with sharp gains in new orders and shipments. Its October general business conditions index jumped 17.9 points to 25.5, topping every estimate in a Bloomberg survey, and the measure of what firms expect to pay for inputs over the next half year hit the highest since 2022.
If these pressures persist, they keep the heat under inflation and the Fed's tightening bias - the combo that shapes borrowing costs and the prices you see at the store. Keep an eye on the Oct. 29 PCE report for the next read on where consumer inflation is headed.
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