Inflation, as measured by the producer price index, rose by two-tenths of a percentage point to 2.2% for the year ending in September, the third month of increases, driven in large part by higher energy costs.
The new numbers were released on Wednesday by the Bureau of Economic Analysis. The consensus expectation among economists was that annual wholesale inflation would be flat after bottoming out in June and ticking up in July and August. On a month-to-month basis, the wholesale price index increased by 0.5%, led by a 3.3% increase in the index for energy.
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This latest increase is an indication that inflationary pressures are persisting to some degree despite the Federal Reserve’s campaign to slow economy-wide spending by hiking interest rates.
Yet Wednesday’s report also suggests that underlying inflation may still be trending down. Core inflation, which strips out volatile energy, food, and trade services prices, continued falling in September, from 2.9% to 2.8%.
“Food and energy and some services price inflation is resilient and may yet prompt another Fed rate hike before this interest rate cycle is done and gone,” Christopher Rupkey, the chief economist for FWDBONDS, wrote in a note on Wednesday’s report.
Wednesday morning’s report came a day before the much-anticipated consumer price index data for September is set to be released. This latest data coupled with the CPI data will provide the Fed with critical information ahead of the next interest rate decision on Nov. 1.
Recent employment reports have bolstered the notion that the jobs market is still holding up remarkably well despite the tightening by the Fed.
The economy added another 336,000 jobs in September, the Bureau of Labor Statistics reported last week, a number that was well above the expectations of forecasters. The strong report also revised up the employment gains in July and August by a combined 119,000.
The numbers show that job growth is accelerating rather than decelerating. That complicates things for the Fed because it means that rates might have to stay higher for longer or even go up even more.
Despite the strong labor market, an overwhelming majority of investors still think that central bank officials will hold off on hiking again this time around, although some investors and economists expect another potential rate revision at some point this year.
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GDP growth has remained well above water despite the rate hikes.
The Bureau of Economic Analysis reported last week that the economy grew at a 2.1% annual rate in the second quarter of this year, near the 2.2% pace the quarter before — surprisingly strong growth given how high interest rates have risen.
