US September PPI surges 1.3% from prior month, biggest jump in 4.5 years

The US producer price index for September surged at its fastest monthly pace in four and a half years, driven by a sharp spike in energy costs in the wake of the US-Iran war.

Coming a day after September consumer prices also topped market expectations, the latest PPI reading has deepened concerns that inflationary pressures in the United States are building again.

The US Ministry of Employment and Labor said Thursday (local time) that the September PPI rose 1.3 percent from the prior month.

That was the highest monthly gain since March 2022, when the index climbed 1.7 percent, and more than double the 0.6 percent increase that Dow Jones-surveyed economists had forecast.

On a year-over-year basis, the index rose 6.3 percent — the highest annual gain since December 2022.

Core PPI, which strips out volatile food and energy prices, climbed 0.7 percent from the prior month, well above the market consensus of 0.3 percent. The year-over-year core reading came in at 5.0 percent.

Breaking down the data by category, goods prices rose 2.6 percent from the prior month — the largest monthly increase since the series began in December 2009. Services prices also rose 0.8 percent.

Within goods, energy prices surged 10.8 percent, accounting for more than 80 percent of the overall rise in goods prices.

Gasoline prices led the energy category, jumping 20.3 percent and accounting for roughly half of the total increase in goods prices.

Food prices rose 1.2 percent, while goods prices excluding food and energy edged up 0.3 percent.

In the services category, transportation and warehousing services prices climbed 3.4 percent, and retail trade margins rose 1.4 percent.

Carl Weinberg, chief economist at High Frequency Economics, said rising transportation costs ripple across the entire economy — from sourcing raw materials for manufacturing to the wholesale and retail distribution of finished goods. "This is how rising energy prices pass through into core goods prices," he said.

The September CPI, released Thursday, showed consumer prices up 0.6 percent from the prior month and 3.7 percent from a year earlier.

With producer prices also rising by more than expected, market attention has turned to whether the Federal Reserve will move to raise interest rates again.

Some components of the PPI feed directly into the Fed's preferred inflation gauge, the personal consumption expenditures price index, meaning the latest data could also shape the outlook for future inflation.

Financial markets, however, still lean toward the Fed holding its benchmark interest rate steady this month, even after the latest inflation readings.

According to the CME FedWatch tool, the probability of a rate hike at the Oct. 27-28 FOMC meeting stood at around 30 percent Friday — little changed from Thursday.

US government bond yields also fell. The 10-year Treasury yield was trading around 5.06 percent Friday morning, down 13 basis points from Thursday.

The PPI, also known as the wholesale price index, is widely regarded as a leading indicator of consumer inflation because changes in producer prices tend to filter through to final consumer goods prices with a lag.