Sep. Wholesale Inflation Higher than Estimated: Up 2.2% Annually

A closely followed inflation measure, the producer price index (PPI), soared 2.2% in September – the highest year-over-year increase since April. On the month, the index rose 0.5% last month, exceeding the consensus estimate of 0.3%. 

Inflation Pressures Fueled by Final Demand Goods

The PPI index – a key inflation gauge that measures the growth of wholesale prices – rose by 0.5% in September, exceeding the Dow Jones projection of a 0.3% increase. However, the rise was lower than the 0.7% recorded in August.

Core PPI, which does not consider food and energy prices, climbed 0.3%, while economists were looking for a 0.2% jump.

Year-over-year, the headline PPI soared by 2.2%, marking the sharpest increase since April. The annual growth in wholesale prices was as low as 0.2% in June but accelerated rapidly in the following months. 

According to the report, the persisting inflation pressures were mainly driven by the final demand goods prices, which surged 0.9% monthly. The bulk of the goods price increase came from gas costs, which rose 5.4%. Services advanced 0.3% in September. 

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Stocks Rise Despite Higher-Than-Expected PPI Print

Although the jump in headline PPI was significant, the markets remained calm. 

The S&P 500 benchmark index rose 0.34% at the market open, with the Dow Jones Industrial Average (DJIA) witnessing a similar increase. Further, the Nasdaq composite was up 0.6% at publication. 

Meanwhile, the 10-year Treasury yield fell slightly to 4.607, and the 30-year yield slipped to 4.754. Yields with long maturity dates have been sitting at multi-year highs recently as the Federal Reserve’s hawkishness continues to weigh on the bond market. 

Over the past few days, the Fed officials have hinted that there may be no need for further interest rate hikes precisely because Treasury yields have risen substantially. This less hawkish stance helped ease investor fears, propelling stocks higher this week. 

However, it may be a while before the central bank cuts rates, as inflation remains notably higher than the 2% target. The Fed previously indicated it may take several years to reach this level. 

When do you expect the Federal Reserve to begin cutting rates? Let us know in the comments below.