U.S. producer price growth tops forecasts, keeping pressure on Fed

Prices paid to U.S. producers rose in September by more than expected, suggesting inflationary pressures will take time to moderate and keeping the Federal Reserve on its aggressive interest rate-hike path.

The producer price index for final demand climbed 0.4% from August, the first increase in three months, and was up 8.5% from a year ago, Labor Department data showed Wednesday.

Excluding the volatile food and energy components, the so-called core PPI increased 0.3% in September and advanced 7.2% from a year earlier.

The median estimates in a Bloomberg survey of economists called for a 0.2% monthly increase in the PPI and a 0.3% rise in the core.

While supply chain disruptions have generally improved, costs rose for energy, foods and services. Two-thirds of the increase in the PPI was traced to services as prices for travel and accommodation, food retailing, portfolio management and hospital inpatient care.

The government’s consumer price index on Thursday is expected to show another solid advance, highlighting still-rapid and broad inflation that will probably lead Federal Reserve policy makers to boost their benchmark interest rates another 75 basis points next month.

Many companies have successfully passed on much, if not all, of the increases in input and labor costs, but it’s unclear how long they can continue to do so as consumers begin to balk at higher prices.

Wednesday’s report showed goods prices increased 0.4%, reflecting higher energy and food costs. For Americans already struggling with high inflation, the report pointed to rising costs for such necessities as residential natural gas, heating oil and a wide range of foodstuff.

Food prices climbed 1.2%. Excluding food and energy, the index of goods costs was unchanged, the softest reading since a decline in May 2020.

Services prices increased 0.4%, the most in three months. However, some categories did show a moderation in price pressures. Wholesaler and retail margins rose just 0.1%, the smallest gain since April. Costs for transportation and warehousing dropped for a third month.

Producer prices excluding food, energy, and trade services—which strips out the most volatile components of the index—increased a larger-than-forecast 0.4% from the prior month, the biggest gain since May.

Geopolitical developments threaten to push up the costs of commodities once more. The Russia-Ukraine war continues to disrupt supplies of commodities like wheat.

Meantime, a decision by the OPEC+ alliance to cut oil output threatens to drive up oil prices in the months ahead, and there remains ongoing uncertainty around the outcome of labor negotiations for 22,000 dockworkers on the West Coast.

Recent surveys have pointed to moderating price pressures for producers. The Institute for Supply Management’s index of prices paid by manufacturers for raw materials dropped to a two-year low in September. S&P Global figures also pointed to slower growth in input costs.

Costs of processed goods for intermediate demand, which reflect prices earlier in the production pipeline, edged up. However, excluding food and energy, the measure declined for a third month.