Inflation didn’t wait for the Fed’s next meeting. The Bureau of Labor Statistics released its Producer Price Index (PPI) for September, and wholesale inflation came in much hotter than anyone expected.
Prices at the wholesale level jumped 1.3% in September, well above the 0.5% economists were forecasting. That’s the biggest one-month increase since March 2022. On an annual basis, the PPI is now up 6.3%, accelerating from 5.4% in August and reaching its highest level since December 2022.
Even after stripping out the volatile food and energy categories, the picture wasn’t any friendlier. Core PPI rose 0.7% for the month, more than double the 0.3% expected, and now sits 5.0% higher than a year ago, up from 4.8% in August.
So, what’s driving it?
Energy, mostly. Goods prices climbed 2.6% in September, and a 10.8% surge in energy costs, tied to geopolitical tensions in the Middle East, accounted for roughly 80% of that jump. Transportation and warehousing costs rose 3.4% on top of a 2.2% increase in August. Trade services climbed 1.4%, with margins on machinery and vehicle wholesaling rising 3.9%.
For bond investors, it’s one more reason the market continues to demand higher compensation, and one more data point the Fed will be weighing at its October 27-28 meeting.
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