US wholesale prices rose last month at the fastest pace since April, suggesting inflationary pressures remain despite a year and a half of higher interest rates.
The Labour Department said on Wednesday that its producer price index – which measures inflation before it hits consumers – rose 2.2 per cent from a year earlier. That was up from a 2 per cent increase in August.
On a month-to-month basis, producer prices rose 0.5 percent from August to September, down from 0.7 percent from July to August.
Excluding volatile food and energy prices, so-called core inflation rose 2.7 percent in September from a year earlier and 0.3 percent from August. The Federal Reserve and many outside economists pay particular attention to core prices as a good signal of where inflation might be heading.
Wholesale prices have been rising more slowly than consumer prices, raising hopes that inflation could continue to ease as producer costs work their way through to consumers. But Wednesday’s figures, driven by a surge in goods prices, came in higher than economists had expected last month. Wholesale energy prices jumped 3.3 per cent between August and September, and food prices rose 0.9 per cent after falling 0.5 per cent between July and August.
Inflation hit a four-decade high last year, prompting the Fed to raise interest rates aggressively. The central bank has raised its benchmark interest rate 11 times since March 2022. These higher borrowing costs have helped cool inflation and slow a still-solid labour market.
Expectations are growing that the Fed may decide to leave rates alone for the rest of the year. On Monday, two Fed officials hinted that the central bank could leave its benchmark interest rate unchanged at its next meeting in three weeks, helping to spark a rally in bonds and stocks.
Rubeela Farooqi, chief US economist at High Frequency Economics, said last month’s rise in producer prices “is unlikely to change the outlook for Fed policy. Our baseline remains that interest rates have peaked. For the Fed, geopolitical developments will be an additional risk factor that will likely keep policymakers cautious going forward.″
Meanwhile, the economy has remained stronger than expected. There is growing optimism that the Fed can achieve a “soft landing” – raising rates just enough to tame inflation without tipping the economy into a deep recession.
On Thursday, the Labor Department will release its closely watched consumer price index for September. Last month, the department reported that core consumer prices rose at the slowest pace in nearly two years in August from a year earlier.
