US producer prices jump 1.3% as inflation spreads beyond energy

The US Labor Department reported on October 15 that the producer price index, or PPI, rose 1.3% in September from the previous month, well above economists' forecast of 0.6%. PPI measures the prices US producers receive for goods and services, rather than the prices shoppers pay at stores.^[1] It was the largest monthly increase since March 2022.^[2]

Prices were 6.3% higher than a year earlier, also exceeding the expected 5.5% increase.^[3] Both goods and services became more expensive, indicating that inflation pressure was broadening beyond energy.^[4]

Higher producer selling prices become cost pressure for businesses buying those goods and services. Unless buyers offset the increase through efficiency or different suppliers, they must choose between raising their own prices and accepting lower margins; raising prices can also weaken sales volumes. With prices rising across goods and services, cheaper energy alone may not be enough to ease the pressure.^[4]

The report also matters for the Federal Reserve. Some PPI components feed into the personal consumption expenditures price index, or PCE, the Fed's preferred inflation gauge. Estimates cited in coverage now put September's monthly increase in core PCE, which excludes food and energy, at 0.32%, versus 0.25% in August; that remains a forecast, not a released result.^[5] If subsequent data confirm persistent inflation, rate cuts become harder to justify, potentially keeping financing expensive for businesses and their customers for longer.

Bond markets did not, however, respond with higher yields that day: on October 15, the two-year Treasury yield fell to 4.77% from 4.82% in the previous session, while the ten-year fell to 5.10% from 5.19%. The inflation report adds uncertainty about rate relief; it does not establish that borrowing costs rose that day.

Impact

What to watch next

• October 15 at 20:30 UTC: Fed official Hammack's speech may show whether she sees the latest inflation data as weakening the case for cuts; one official's view is not a Fed decision.
• October 16: September import prices are expected to rise 0.8% month over month, after 0.7% previously. The result will show whether overseas purchases are also adding to US businesses' cost pressure.