Unexpectedly high wholesale price growth in September was a sign of brewing inflationary pressures for the American economy.
The Labor Department stated on Wednesday that the producer price index, which gauges the costs for finished goods that producers pay, grew by 0.5% for the month as opposed to the 0.3% increase predicted by the Dow Jones. Less than the 0.7% growth in August, that.
Against the prediction of 0.2%, the core PPI increased by 0.3% when food and energy were excluded. When food, energy, and trade services were excluded, the index increased by 0.2%, as predicted.
The PPI data only caused a minor reaction in the markets, with stock futures falling marginally and Treasury rates rising from their lows while remaining negative on the majority of longer-term issues.
Services saw an increase of 0.3%, whereas final demand products had an increase of 0.9% on a monthly basis.
Gasoline prices rose by 5.4%, accounting for a large portion of the increase in goods prices, while food costs rose by 0.9%. Overall, energy prices increased 3.3%. When food and energy are removed, the price of core items increased by just 0.1%, reflecting normalized supply networks.
The cost of final demand trade services climbed by 0.5%, while prices for final demand services less trade, transportation, and storage increased by 0.3%. The price of deposit services at commercial banks increased 13.9% within the services category as well.
The headline PPI gained 2.2% on an annual basis, the biggest change since April. In June, the 12-month pace had decreased to as low as 0.2%, but since then, it has been increasing.
According to Michael Loewengart, head of model portfolio design for Morgan Stanley's Global Investment Office, the analysis “suggests we haven't seen the end of sticky inflation—and high interest rates.” He adds, “Either way, investors will need to remain patient. Lowering inflation significantly from last year’s highs was one challenge, getting it down to the Fed’s 2% target level is another.”
Markets view the PPI as a leading indication of inflation since it measures a wide range of expenses for commodities that travel through the pipeline and end up as consumer goods. The more carefully watched consumer price index, which is due out on Thursday from the Labor Department, is anticipated to show a slight slowdown in the rate of inflation.
The Federal Reserve, which has been rapidly raising interest rates in a bid to contain inflation, uses data from both reports to inform its policy decisions.
While Treasury yields have dramatically increased on their own recently, tightening financial conditions, central bank officials have suggested that they might not need to implement future raises. Stock prices have increased this week as a result of this helping to allay market concerns.
The Fed wants to achieve annual inflation of 2%, but that won't happen for a while. Despite the fact that officials have one more rate rise planned for before the end of the year, market pricing suggests the central bank is likely through hiking rates in this cycle.
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