Wholesale prices rose 6.3% in September, largest annual gain since 2022

• Energy drove inflation higher, with spillover effects evident as nearly half of September's processed goods price increases linked to diesel fuel costs; core PPI still rose 0.7% monthly and 5% annually
• Fed funds futures now price in a 34% probability of a rate hike at the Oct. 28 meeting, up from under 18% a week earlier, with 90% expecting at least one hike by year-end
• Retail sales grew 0.8% in September but excluding autos and gas stations rose only 0.25%, suggesting high fuel prices are constraining consumer spending in other categories

Summary: Wholesale Prices Surge 6.3% in September, Highest Since 2022

The Producer Price Index (PPI) rose 6.3% year-over-year in September, marking the largest annual increase since December 2022 and significantly exceeding economist expectations of 5.5%. Monthly PPI climbed 1.3%, more than doubling the forecasted 0.6% increase—the largest monthly gain since March 2022.

Key Drivers:

Energy costs were the primary driver, with Middle East conflict curtailing oil supply and pushing prices higher. Core PPI (excluding food and energy) rose 0.7% monthly and 5% annually, indicating broader inflationary pressures. Nearly half of September's processed goods price increases were linked to surging diesel fuel prices, demonstrating spillover effects across categories.

Related Data:

The report follows Wednesday's hotter-than-expected Consumer Price Index (CPI), which showed 3.7% annual growth versus the forecasted 3.6%. Core CPI increased 2.6% annually, above the expected 2.5%. Additionally, the Federal Reserve's Beige Book recorded its highest-ever number of inflation-related mentions.

Retail sales rose 0.8% in September but slowed when excluding autos and gas (0.25% versus 1.1% previously), suggesting consumers are reducing discretionary spending due to elevated fuel prices.

Market Implications:

The persistent inflation data has shifted Fed rate hike expectations dramatically. Fed funds futures now price in a 34% probability of a rate increase at the October 28 meeting, up from 18% a week prior. Approximately 90% of traders expect at least one hike by year-end.

The data arrives ahead of upcoming elections and reinforces expectations that the Federal Reserve will maintain its hawkish stance to combat persistent inflationary pressures, particularly those stemming from geopolitical tensions affecting energy markets.